Material Requirements Planning
‐ MRP
ENM308
Production Planning and Control ‐ I
Spring 2013
Haluk Yapıcıoğlu, PhD
Aggregate Planning Master Production ScheduleInventory Control Operations Scheduling
Vehicle Routing Forecast of Demand
Hierarchy of Production Decisions
•
Forecasting: First, a firm must forecast demand
for aggregate sales over the planning horizon.
•
Aggregate planning: The forecasts provide inputs
for determining aggregate production and
workforce levels over the planning horizon.
•
Master production schedule (MPS): Recall, that
the aggregate production plan does not consider
any “real” product but a “fictitious” aggregate
product. The MPS translates the aggregate plan
output in terms of specific production goals by
product and time period.
Hierarchy of Production Decisions
• Suppose that a firm produces three types of chairs: ladder‐ back chair, kitchen chair and desk chair. The aggregate production considers a fictitious aggregate unit of chair and find that the firm should produce 550 units of chairs in April. The MPS then translates this output in terms of three product types and four work‐weeks in April. The MPS suggests that the firm produce 200 units of desk chairs in Week 1, 150 units of ladder‐back chair in Week 2, and 200 units of kitchen chairs in Week 3. • Material Requirements Planning (MRP): A product is manufactured from some components or subassemblies. For example a chair may require two back legs, two front legs, 4 leg supports, etc.Master Production Schedule
Ladder‐back chair Kitchen chair Desk chair 1 2 April May 790 3 4 5 6 7 8 200 150 120 200 150 200 120 Aggregate production plan for chair family 550 200Hierarchy of Production Decisions
• While forecasting, aggregate plan and MPS consider the volume of finished products, MRP plans for the components, and subassemblies. A firm may obtain the components by in‐house production or purchasing. MRP prepares a plan of in‐house production or purchasing requirements of components and subassemblies. • Scheduling: Scheduling allocates resource over times in order to produce the products. The resources include workers, machines and tools. • Vehicle Routing: After the products are produced, the firm may deliver the products to some other manufacturers, or warehouses. The vehicle routing allocates vehicles and prepares a route for each vehicle.Materials Requirement Planning
Back slats Leg supports Seat cushion Seat‐frame boards Front legs Back legsMaterial Requirements Planning
•
The demands for the finished goods are obtained from
forecasting. These demands are called independent
demand.
•
The demands for the components or subassemblies
depend on those for the finished goods. These
demands are called dependent demand.
•
Material Requirements Planning (MRP) is used for
dependent demand and for both assembly and
manufacturing
•
If the finished product is composed of many
components, MRP can be used to optimize the
inventory costs.
Inventory without
an MRP System
Inventory with
an MRP System
Importance of an MRP System
Importance of an MRP System
•
Without an MRP system:
– Component is ordered at time A, when the inventory level of the component hits reorder point, R – So, the component is received at time B. – However, the component is actually needed at time C, not B. So, the inventory holding cost incurred between time B and C is a wastage.•
With an MRP system:
– We shall see that given the production schedule of the finished goods and some other information, it is possible to predict the exact time, C when the component will be required. Order is placed carefully so that it is received at time C.MRP Input and Output
•
MRP Inputs:
–
Master Production Schedule (MPS): The MPS of
the finished product provides information on the
net requirement of the finished product over
time.
–
Inventory file: For each item, the number of units
on hand is obtained from the inventory file.
MRP Input and Output
•
MRP Inputs:
– Bill of Materials: For each component, the bill of materials provides information on the number of units required, source of the component (purchase/ manufacture), etc. There are two forms of the bill of materials: • Product Structure Tree: The finished product is shown at the top, at level 0. The components assembled to produce the finished product is shown at level 1 or below. The sub‐components used to produce the components at level 1 is shown at level 2 or below, and so on. The number in the parentheses shows the requirement of the item. For example, “G(4)” implies that 4 units of G is required to produce 1 unit of B. • For each item, the name, number, source, and lead time of every component required is shown on the bill of materials in a tabular form.MRP Input and Output
•
MRP Output:
–
Every required item is either produced or
purchased. So, the report is sent to production or
purchasing.
MRP computer program Bill of Materials file Inventory file Master Production Schedule Reports To Production To Purchasing Forecasts OrdersMRP Input and Output
Level 1 Level 0 Level 2 Level 3
Tree
BILL OF MATERIALS
Product Description: Ladder‐back chair
Item: A
Component
Quantity
Required
Source
Item
Description
B
Ladder‐back
1
Manufacturing
C
Front legs
2
Purchase
D
Leg supports
4
Purchase
E
Seat
1
Manufacturing
Bill of Materials
BILL OF MATERIALS
Product Description: Seat
Item: E
Component
Quantity
Required
Source
Item
Description
H
Seat frame
1
Manufacturing
I
Seat cushion
1
Purchase
Bill of Materials
On Hand Inventory and Lead time
Component Units in Inventory
Lead Time (weeks)
Seat aubassembly 25 2
Seat Frame 50 3
MRP Calculation
• Suppose that 150 units of ladder‐back chair is required. • The previous slide shows a product structure tree with seat subassembly, seat frames, and seat frame boards. For each of the above components, the previous slide also shows the number of units on hand. • The net requirement is computed from top to bottom. Since 150 units of ladder‐back chair is required, and since 1 unit of seat subassembly is required for each unit of ladder‐ back chair, the gross requirement of seat‐subassembly is 150x1 =150 units. Since there are 25 units of seat‐ subassembly in the inventory, the net requirement of the seat‐subassembly is 150 – 25 = 125 units.MRP Calculation
• Since 1 unit of seat frames is required for each unit of
seat subassembly, the gross requirement of the seat
frames is 1251 = 125 units. (Note that although it
follows from the product structure tree that 1 unit of
seat frames is required for each unit of ladder‐back
chair, the gross requirement of seat frames is not 150
units because each of the 25 units of seat‐subassembly
also contains 1 unit of seat frames.) Since there are 50
units of seat frames in the inventory, the net
requirement of the seat frames is 125‐50 = 75 units.
The detail computation is shown in the next two slides.
• A similar logic is used to compute the time of order
placement.
Assume that 150 units of ladder‐back chairs are to be produced at the end of week 15
Units Quantity of ladder‐back chairs to be produced 150 Gross requirement, seat subassembly
Less seat subassembly in inventory 25
Net requirement, seat subassembly
Gross requirement, seat frames
Less seat frames in inventory 50
Net requirement, seat frames
Gross requirement, seat frame boards
Less seat frame boards in inventory 75
Net requirement, seat frame boards
MRP Calculation
Assume that 150 units of ladder‐back chairs are to be produced at the end of week 15
Units Quantity of ladder‐back chairs to be produced 150 Gross requirement, seat subassembly 150 Less seat subassembly in inventory 25
Net requirement, seat subassembly 125 Gross requirement, seat frames 125 Less seat frames in inventory 50
Net requirement, seat frames 75 Gross requirement, seat frame boards 300 Less seat frame boards in inventory 75
Net requirement, seat frame boards 225
Assume that 150 units of ladder‐back chairs are to be produced at the end of week 15 and that there is a one‐week lead time for ladder‐back chair assembly
Week Complete order for seat subassembly 14 Minus lead time for seat subassembly 2
Place an order for seat subassembly Complete order for seat frames
Minus lead time for seat frames 3 Place an order for seat frames
Complete order for seat frame boards
Minus lead time for seat frame boards 1 Place an order for seat frame boards
MRP Calculation: Time of Order Placement
Assume that 150 units of ladder‐back chairs are to be produced at the end of week 15 and that there is a one‐week lead time for ladder‐back chair assembly
Week Complete order for seat subassembly 14 Minus lead time for seat subassembly 2
Place an order for seat subassembly 12 Complete order for seat frames 12 Minus lead time for seat frames 3
Place an order for seat frames 9 Complete order for seat frame boards 9 Minus lead time for seat frame boards 1 Place an order for seat frame boards 8
MRP Calculation: Some Definitions
•
Scheduled Receipts:
– Items ordered prior to the current planning period and/or – Items returned from the customer•
Lot‐for‐lot (L4L)
– Order quantity equals the net requirement – Sometimes, lot‐for‐lot policy cannot be used. There may be restrictions on minimum order quantity or order quantity may be required to multiples of 50, 100 etc.MRP Calculation
• Example 1: Each unit of A is composed of one unit of B, two units of C, and one unit of D. C is composed of two units of D and three units of E. Items A, C, D, and E have on‐hand inventories of 20, 10, 20, and 10 units, respectively. Item B has a scheduled receipt of 10 units in period 1, and C has a scheduled receipt of 50 units in Period 1. Lot‐for‐lot (L4L) is used for Items A and B. Item C requires a minimum lot size of 50 units. D and E are required to be purchased in multiples of 100 and 50, respectively. Lead times are one period for Items A, B, and C, and two periods for Items D and E. The gross requirements for A are 30 in Period 2, 30 in Period 5, and 40 in Period 8. Find the planned order releases for all items.Level 0 Level 1 Level 2
MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item A LT= Q= Gross Requirements Scheduled receipts On hand from prior period Net requirements Time‐phased Net Requirements Planned order releases Planned order deliveryMRP Calculation
All the information above are given. Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 Net requirements Time‐phased Net Requirements Planned order releases Planned order delivery
MRP Calculation
20 units are just transferred from Period 1 to 2. Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 20 Net requirements ‐‐ Time‐phased Net Requirements Planned order releases Planned order deliveryMRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 20 Net requirements ‐‐ 10 Time‐phased Net Requirements 10 Planned order releases 10 Planned order delivery 10 The net requirement of 30‐20=10 units must be ordered in week 1.
MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 20 0 0 0 Net requirements ‐‐ 10 Time‐phased Net Requirements 10 Planned order releases 10 Planned order delivery 10 The net requirement of 30‐20=10 units must be ordered in week 1.MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 20 0 0 0 Net requirements ‐‐ 10 30 Time‐phased Net Requirements 10 30 Planned order releases 10 30 Planned order delivery 10 30 The net requirement of 30‐00 = 30 units must be ordered in week 4.
MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item A LT= 1 wk Q= L4L Gross Requirements 30 30 40 Scheduled receipts On hand from prior period 20 20 0 0 0 0 0 0 0 0 Net requirements ‐‐ 10 30 40 Time‐phased Net Requirements 10 30 40 Planned order releases 10 30 40 Planned order delivery 10 30 40 The net requirement of 40 – 0 = 40 units must be ordered in week 7.MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item B LT= 1 wk Q= L4L Gross Requirements 10 30 40 Scheduled receipts 10 On hand from prior period 0 0 0 0 0 0 Net requirements 30 40 Time‐phased Net Requirements 30 40 Planned order releases 30 40 Planned order delivery 30 40
MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item C LT= 1 wk Q= 50 Gross Requirements 20 60 80 Scheduled receipts 50 On hand from prior period 10 40 40 40 30 30 30 0 0 0 Net requirements 20 50 Time‐phased Net Requirements 20 50 Planned order releases 50 50 Planned order delivery 50 50MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item D LT= 2 wk Q= 100 Gross Requirements 10 100 30 100 40 Scheduled receipts On hand from prior period 20 10 10 10 80 80 80 40 40 40 Net requirements 0 90 20 20 0 Time‐phased Net Requirements 90 20 20 Planned order releases 100 100 100 Planned order delivery 100 100 100
MRP Calculation
Period 1 2 3 4 5 6 7 8 9 10 Item E LT= 2 Q= 50 Gross Requirements 150 150 Scheduled receipts On hand from prior period 10 10 10 20 20 20 20 20 20 20 Net requirements 140 130 Time‐phased Net Requirements 140 130 Planned order releases 150 150 Planned order delivery 150 150MRP Calculation
MATERIAL REQUIREMENTS PLANNING:
LOT SIZING
Lot‐sizing models
•
Lot‐for‐lot – "chase" demand
•
EOQ – fixed quantity, different intervals
•
Silver‐Meal
•
Least Unit Cost
•
Part period balancing try to make
setup/ordering cost equal to holding cost
•
Wagner‐Whitin "optimal" method
Lot‐sizing example
•
Costs
–
K = 100, h = 1, λ
30
–
Method 1 = $1000
–
Method 2 = $ 580
Week 1 2 3 4 5 6 7 8 9 10 Net Reqs 20 50 10 50 50 10 20 40 20 30 Planned Order 1 20 50 10 50 50 10 20 40 20 30 Planned Order 2 80 130 90Lot sizing example (cont’d)
•
EOQ
•
77
Week 1 2 3 4 5 6 7 8 9 10 Total Net Req 20 50 10 50 50 10 20 40 20 30 300 Qt 77 77 77 77 308 Setup 100 100 100 100 $400 Holding 57 7 74 24 51 41 21 58 38 $371 Total $771Silver‐Meal Heuristic
C(T): average setup and holding costs per period if
the current
order covers the next T periods.
C(1) = K
C(2) = (K + hr
2)/2
C(3) = (K + hr
2+ 2hr
3)/3
C(4) = (K + hr
2+ 2hr
3+ 3hr
4)/4
C(j) = (K + hr
2+ 2hr
3+…+ (j ‐ 1)r
j) = j
Rule: Iterate until C(j) > C(j ‐ 1), set
∑
,
and begin again at period j .
Silver Meal Example
C(1) = 100
C(2) = (100 + 1(50))/2 = 75
C(3) = (100 + 1(50) + 2(1)(10))/3 = 56.67
C(4) = (100 + 1(50) + 2(1)(10) + 3(1)(50))/4 = 80
So y
1= 20 + 50 + 10 = 80, and we start over at t = 4.
Week 1 2 3 4 5 6 7 8 9 10 Total Net Req 20 50 10 50 50 10 20 40 20 30 300 Qt 80 110 80 30 300 Setup 100 100 100 100 $400 Holding 60 10 60 10 60 20 $220 Total $620Least Unit Cost Example
C(1) = 100/20 = 5 C(2) = (100 + 1(50))/(20+50) = 2,143 C(3) = (100 + 1(50) + 2(1)(10))/(20+50+10) = 2,125 C(4) = (100 + 1(50) + 2(1)(10) + 3(1)(50)) /(20+50+10+50) = 2,462 So y1= 20 + 50 + 10 = 80, and we start over at t = 4. Week 1 2 3 4 5 6 7 8 9 10 Total Net Req 20 50 10 50 50 10 20 40 20 30 300 Qt 80 100 70 50 300 Setup 100 100 100 100 $400 Holding 60 10 50 60 40 30 $250 Total $650Part period balancing
•
At each step, compute total holding cost H
kif we
produce enough for the next k periods. Choose k
such that H
kis as near as possible to K.
•
For K = $100, y
1= 20 + 50 + 10 = 80, and we start
over at t = 4.
Order Horizon Total Holding Cost 1 0 2 50 3 70 4 220Part Period Balancing Example
Week 1 2 3 4 5 6 7 8 9 10 Total Net Req 20 50 10 50 50 10 20 40 20 30 300 Qt 80 130 90 300 Setup 100 100 100 $300 Holding 60 10 80 30 20 50 30 $280 Total $580Wagner‐Whitin: an optimal algorithm
• Define fkas the minimum cost starting at node k, assuming we start a lot at node k. Then,
fk= min j>k (ckj+ fj);
• where ckjis the setup and holding costs of setting up in period k and producing to meet demand through period j ‐ 1, and fn+1= 0.
Wagner‐Whitin: an optimal algorithm
1
752
753
754
755
162 208 376 131 98 210Wagner‐Whitin Example
Week 1 2 3 4 5 6 7 8 9 10 Total Net Req 20 50 10 50 50 10 20 40 20 30 300 Qt 80 130 90 300 Setup 100 100 100 $300 Holding 60 10 80 30 20 50 30 $280 Total $580Summary of Lot‐sizing Methods
Week 1 2 3 4 5 6 7 8 9 10 Total
Net Req 20 50 10 50 50 10 20 40 20 30 300
EOQ 77 77 77 77 $771
Silver‐Meal 80 110 80 30 $620
Least Unit Cost 80 100 70 50 $650
TotalPart Period Bal. 80 130 90 $580
Wagner‐Whitin 80 130 90 $580
LOT SIZING WITH CAPACITY
CONSTRAINTS
Lot sizing with capacity constraints
•
So far we have assumed that there is no capacity
constraint on production. However, often, the
production capacity is limited.
•
Here we assume that it is required to develop a
production plan (i.e., production quantities of
various periods) that minimizes total inventory
holding and ordering costs.
•
Capacity constraints make the problem more
realistic.
•
At the same time, capacity constraints make the
problem difficult.
Lot sizing with capacity constraints
Week 1 2 3 4 5 6 7 8 9 10 Total
Net Req rt 20 50 10 50 50 10 20 40 20 30 300
Capacity ct 32 32 32 32 32 32 32 32 32 32 320
Cumulative rt 20 70 80 130 180 190 210 250 270 300
Cumulative ct 32 64 96 128 160 192 224 256 288 320
In general, we require that
Feasibility check
•
For every period, compute the cumulative
requirement and the cumulative capacity.
–
If for every period, the cumulative capacity is
larger than (or equal to) the cumulative
requirement, then there exists a feasible solution.
–
Else, if there is a period in which cumulative
capacity is smaller than the cumulative
requirement, then there will be a shortage in that
period, and, therefore, there is no feasible
solution.
Checking feasibility
Production
Requirement
Production
Capacity
June
10
15
July
14
11
August
15
12
September
16
17
Question: Is it possible to meet the production
requirements of all the months?
Checking feasibility
Production Requirement Cumulative Production Capacity CumulativeJune
10
10
15
15
July
14
24
11
26
August
15
39
12
38
September
16
55
17
55
Answer: The August requirement cannot be met
even after full production in June, July and
August. Hence, it is not possible to meet the
production requirements of all the months.
Lot sizing with capacity constraints
•
Two methods:
–
the lot shifting technique, a heuristic procedure
that constructs a production plan, and
–
another procedure that improves a given
production plan.
•
At times, capacity may be so low that it may
not be possible to meet the demand of all
periods. How to check feasibility?
Lot shifting technique
•
Lot shifting technique constructs a feasible
production plan, if there exists one or provides a
proof that there is no feasible solution.
•
Lot shifting method is a heuristic. The production
plan obtained from the lot shifting technique is
not necessarily optimal. It is possible to improve
the production plan.
•
An improvement procedure will be discussed
after the lot shifting technique.
Lot shifting technique
•
The lot shifting method repeatedly does the
following:
–
Find the first period with less capacity.
• If possible, back‐shift the excess capacity to some prior periods. Continue. • If it is not possible to back‐shift the excess capacity to some prior periods, stop. There is no feasible solution.Lot shifting technique: example
Production
Requirement
Production
Capacity
June
10
30
July
14
13
August
15
13
September
16
17
Question: Find a feasible production plan
Lot shifting technique: example
Production
Requirement
Production
Capacity
June
10
30
July
14
13
August
15
13
September
16
17
Rule: Find the first period with less capacity.
The first period with shortage is July when the
capacity = 13 < 14 = production requirement.
Lot shifting technique: example
Production
Requirement
Production
Capacity
June
11
30
July
13
13
August
15
13
September
16
17
Rule: Find the first period with less capacity.
The first period with shortage is July when the
capacity = 13 < 14 = production requirement.
Lot shifting technique: example
Production
Requirement
Production
Capacity
June
13
30
July
13
13
August
13
13
September
16
17
Rule: Find the first period with less capacity.
The second period with shortage is August
when the capacity = 13 < 15 = production
requirement.
Improvement rule
Rule: Beginning at the last period, shift the
entire production lot to the nearest time periods
having excess capacity, if the savings in setup
cost is greater than the additional holding costs.
Improvement rule: example
Question: Is it possible to improve the plan if
K= $50, h=$2/unit/month?
Production
Requirement
Production
Capacity
June
13
30
July
13
13
August
13
13
September
16
17
Improvement rule: example
Back‐shift September production to June?
Production
Requirement
Production
Capacity
Excess
June
13
30
17
July
13
13
0
August
13
13
0
September
16
17
1
Improvement rule: example
Back‐shift August production to June?
Production
Requirement
Production
Capacity
Excess
June
13
30
17
July
13
13
0
August
13
13
0
September
16
17
1
Improvement rule: example
Back‐shift July production to June?
Production
Requirement
Production
Capacity
Excess
June
13
30
17
July
13
13
0
August
13
13
0
September
16
17
1
Improvement rule: example
Final Plan
The above is the result of the improvement
procedure.
Production
Requirement
Production
Capacity
Excess
June
26
30
4
July
0
13
13
August
13
13
0
September
16
17
1
Shortcomings of MRP
•
Uncertainty.
MRP ignores demand uncertainty, supply uncertainty, and internal uncertainties that arise in the manufacturing process.•
Capacity Planning.
Basic MRP does not take capacity constraints into account.•
Rolling Horizons.
MRP is treated as a static system with afixed horizon of n periods. The choice of n is arbitrary and can affect the results.