30079_32b.pdf

Other reasons that have been given for the lack of general adoption for AP models include:

1. The AP modeling approach is viewed as a top-down process, whereas many organizations

operate AP as a bottom-up process.

2. The assumption used in many of the models, such as linear cost structures, the aggregation

of all production into a common measure, or that all workers are equal, are too simplistic or

unrealistic.

3. Data requirements are too extensive or costly to obtain and maintain.

4. Decision-makers are intimidated or unwilling to deal with the complexity of the models'

formulations and required analyses.

Given this, therefore, it is not surprising that few modeling approaches have been adopted in

industrial settings. Although research continues on AP, there is little to indicate any significant mod-

eling breakthrough in the near future that will dramatically change this situation.

One direction, however, is to recognize the hierarchical decision-making structure of AP and to

design modeling approaches that utilize it. These systems may be different for different organizations

and will be difficult to design, but currently appear to be one approach for dealing with the complexity

necessary in the aggregate planning process if a modeling approach is to be followed. For a com-

prehensive discussion of hierarchical planning systems, see Ref. 33.

32.5 MATERIALS REQUIREMENTS PLANNING

Materials requirements planning (MRP) is a procedure for converting the output of the aggregate

planning process, the master production schedule, into a meaningful schedule for releasing orders

for component inventory items to vendors or to the production department as required to meet the

delivery requirements of the master production schedule.

Materials requirements planning is used in situations where the demand for a product is irregular

and highly varying as to the quantity required at a given time. In these situations, the normal inventory

models for quantities manufactured or purchased do not apply. Recall that those models assume a

constant demand and are inappropriate for the situation where demand is unknown and highly vari-

able. The basic difference between the independent and dependent demand systems is the manner in

which the product demand is assumed to occur. For the constant demand case, it is assumed that the

daily demand is the same. For dependent demand, a forecast of required units over a planning horizon

is used. Treating the dependent demand situation differently allows the business to maintain a much

lower inventory level in general than would be required for the same situation under an assumed

constant demand. This is so because the average inventory level will be much less in the case where

MRP is applied. With MRP, the business will procure inventory to meet high demand just in advance

of the requirement and at other times maintain a much lower level of average inventory.

Definitions

AVAILABLE UNITS. Units of stock that are in inventory and are not in the category of buffer or

safety stock and are not otherwise committed.

GROSS REQUIREMENTS. The quantity of material required at a particular time that does not consider

any available units.

INVENTORY UNIT. A unit of any product that is maintained in inventory.

LEAD TIME. The time requirement for the conversion of inventory units into required subassemblies

or the time required to order and receive an inventory unit.

MRP. Materials Requirements Planning: a method for converting the end item schedule for a fin-

ished product into schedules for the components that make up the final product.

MRP-II. Manufacturing Resources Planning: a procedural approach to the planning of all resource

requirements for the manufacturing firm.

NET REQUIREMENTS. The units of a requirement that must be satisfied by either purchasing or

manufacturing.

PRODUCT STRUCTURE TREE. A diagram representing the hierarchical structure of the product. The

trunk of the tree would represent the final product as assembled from the subassemblies and

inventory units that are represented by level one, which come from sub-subassemblies, and in-

ventory units that come from the second level, and so on ad infinitum.

SCHEDULED RECEIPTS. Material that is scheduled to be delivered in a given time bucket of the

planning horizon.

TIME BUCKET. The smallest distinguishable time period of the planning horizon for which activities

are coordinated.

32.5.1 Procedures and Required Inputs

The master production schedule is devised to meet the production requirements for a product during

a given planning horizon. It is normally prepared from fixed orders in the short run and product

requirements forecasts for the time past that for which firm product orders are available. This master

production schedule, together with information regarding inventory status and the product structure

tree and/or the bill of materials, are used to produce a planned order schedule. An example of a

master production schedule is shown in Table 32.9.

The MRP schedule is the basic document used to plan the scheduling of requirements for meeting

the MPS. An example is shown in Table 32.10. Each horizontal section of this schedule is related to

a single product, part, or subassembly from the product structure tree. The first section of the first

form would be used for the parent product. The following sections of the form and required additional

forms would be used for the children of this parent. This process is repeated until all parts and

assemblies are listed.

To use the MRP schedule, it is necessary to complete a schedule first for the parent part. Upon

completion of this level zero schedule, the "bottom line" becomes the input into the schedule for

each child of the parent. This procedure is followed until each component, assembly, or purchased

part has been scheduled for ordering or production in accordance with the time requirements and

other limitations that are imposed by the problem parameters. It should be noted that if a part is used

at more than one place in the assembly or manufacture of the final product, it has only one MRP

schedule, which is the sum of the requirements at the various levels. The headings of the MRP

schedule are as follows:

Item code. The company-assigned designation of the part or subassembly as shown on the product

structure tree or the bill of materials.

Level code. The level of the product structure tree at which the item is introduced into the process.

The completed product is designated level 0, subassemblies or parts that go together to make

up the completed product are level 1, sub-subassemblies and parts that make up level 1 sub-

assemblies are level 2, etc.

Lot size. The size of the lot that is purchased when an order is placed. This quantity may be an

economic order quantity or a lot-for-lot purchase. (This later expression is used for a purchase

quantity equal to the number required and no more.)

Lead time. The time required to receive an order from the time the order is placed. This order

may be placed internally for manufacturing or externally for purchase.

On hand. The total of all units of stock in inventory.

Safety stock. Stock on hand that is set aside to meet emergency requirements.

Allocated (stock). Stock on hand that has been previously allocated for use, such as for repair

parts for customer parts orders.

The rows related to a specific item code are designated as follows:

Gross requirements. The unit requirements for the specific item code in the specific time bucket,

which are obtained from the MPS for the level 0 items. For item codes at levels other than

level 0, the gross requirements are obtained from the planned order releases for the parent item.

Where an item is used at more than one level in the product, its gross requirements would be

the summation of the planned order releases of the items containing the required part.

Scheduled receipts. This quantity is defined at the beginning of the planning process for products

that are on order at that time. Subsequently it is not used.

Available. Those units of a given item code that are not safety stock and are not dedicated for

other uses.

Table 32.9 Example of a Master

Production Schedule for a Given

Product

Part

Number

AOOO

Quantity

Needed

Due

Date

Table 32.10 Example MRP Schedule Format

Lead

Item Level Lot Time On Safety

Code Code Size (weeks) Hand Stock Allocated

Gross requirements

Scheduled receipts

Available

Net requirements

Planned order receipts

Planned order releases

Gross requirements

Scheduled receipts

Available

Net requirements

Planned order receipts

Planned order releases

Gross requirements

Scheduled receipts

Available

Net requirements

Planned order receipts

Planned order releases

Gross requirements

Scheduled receipts

Available

Net requirements

Planned order receipts

Planned order releases

Fig. 32.6 Diagram of model car indicating all parts. (From Ref. 34.)

Net requirements. For a given item code, this is the difference between gross requirements and

the quantity available.

Planned order receipts. An order quantity sufficient to meet the net requirements, determined by

comparing the net requirements to the lot size (ordering quantity) for the specific item code.

If the net requirements are less than the ordering quantity, an order of the size as shown as the

lot size will be placed; if the lot size is LFL (lot-for-lot), a quantity equal to the net requirements

will be placed.

Planned order releases. This row provides for the release of the order discussed in planned order

receipts, to be released in the proper time bucket such that it will arrive appropriately to meet

the need of its associated planned order receipt. Note also that this planned order release

provides the input information for the requirements of those item codes that are the children

of this unit in subsequent generations if such generations exist in the product structure.

Example Problem 32.6 (From Ref. 34, pp. 239-240)

If you were a Cub Scout, you may remember building and racing a little wooden race car. Such cars

come 10 in a box. Each box has 10 preformed wood blocks, 40 wheels, 40 nails for axles, and a

sheet of 10 vehicle number stickers. The problem is the manufacture and boxing of these race-car

kits. An assembly explosion and manufacturing tree are given in Figs. 32.6 and 32.7.

Levels

Box of 10

car kits

I »AOOO

I (io)

I m

Finished'

Bag of nails

wood body

and wheels

#A100- I

[ #A300 I

I (1)

Rough

wood body

-•>

#A110

I (1/50) I (1) I (40) I (40) I (1) I (1)

Number , WIIK-.I Plastic Packing

Lun*er stickers N*1* ^heels bag box

*A111 [ I »A211 I I *A311 I I *A312 I I »A313 I I #A411

Fig. 32.7 Product structure tree. (From Ref. 34.)

Studying the tree indicates four operations. The first is to cut 50 rough car bodies from a piece

of lumber. The second is to plane and slot each car body. The third is to bag 40 nails and wheels.

The fourth is to box materials for 10 race cars.

The information from the production structure tree for the model car, together with available

information regarding lot sizes, lead time, and stock on hand, is posted to the MRP schedule format

to provide information for analysis of the problem. In the problem, no safety stock was prescribed

and no stock was allocated for other use.

This information allowed the input into the MRP format of all information shown below for the

eight item codes of the product. The single input into the right side of the problem format is the

MPS for the parent product, AOOO.

With this information, each of the values of the MPR schedule can be calculated. It should be

noted that the output (planned order releases) of the level 0 product multiplied by the requirements

per parent unit (as shown in parenthesis at the top right corner of the "child" component in the

product structure tree) becomes the "gross requirements" for the (or each) "child" of the parent part.

32.5.2 Calculations

As previously stated, the gross requirements come either from the MPS (for the parent part) or the

calculation of the planned order releases for the parent part multiplied by the per-unit requirement

of the current child, per parent part. The scheduled receipts are receipts scheduled from a previous

MRP plan. The available units are those on hand from a previous period plus the scheduled receipts

from previous MRP. The net requirements are gross requirements less the available units. If this

quantity is negative, indicating that there is more than enough, it is set to zero. If it is positive, it is

necessary to include an order in a previous period of quantity equal to or greater than the lot size,

sufficient to meet the current need. This is accomplished by backing up a number of periods equal

to the lead time for the component and placing an order in the planned order releases now that it is

equal to or greater than the lot size for the given component.

It should be noted that scheduled receipts and planned order receipts are essentially the arrival of

product. The distinction between the two is that scheduled receipts are orders that were made on a

previous MRP plan. The planned order receipts are those that are scheduled on the current plan.

Further, in order to keep the system operating smoothly, the MRP plan must be reworked as soon

as new information becomes available regarding demand for the product for which the MPS is

prepared. This essentially, provides an ability to respond and to keep materials in the "pipeline" for

delivery.

Without updating, the system becomes cumbersome and unresponsive. For example, most of the

component parts are exhausted at the end of the 15-week period; hence, to respond in the 16th week

would require considerable delay if the schedule were not updated.

The results of this process are shown in Tables 32.11, 32.12, and 32.13.

The planned order release schedule (Table 32.14) is the result of the MRP procedure. It is

essentially the summation of the bottom lines for the individual components from the MRP schedules.

It displays an overall requirement for meeting the original master production schedule.

32.5.3 Conclusions on MRP

It should be noted that this process is highly detailed and requires a large time commitment for even

a simple product. It becomes intractable for doing by hand in realistic situations. Computerized MRP

applications are available that are specifically designed for certain industries and product groups. It

is suggested that should more information be required on this topic, the proper approach would be

to contact software suppliers for the appropriate computer product.

32.5.4 Lot-Sizing Techniques

Several techniques are applicable to the determination of the lot size for the order. If there are many

products and some components are used in several products, it may be that demand for that common

component is relatively constant. If that is the case, EOQ models such as those used in the topic on

inventory can be applied.

The POQ (periodic order quantity) is a variant of the EOQ where a nonconstant demand over a

planning horizon is averaged. This average is then assumed to be the constant demand. Using this

value of demand, the EOQ is calculated. The EOQ is divided into the total demand if demand is

greater than EOQ. This resultant figure gives the number of inventory cycles for the planning horizon.

The actual forecast is then related to the number of inventory cycles and the order sizes are

determined.

Example Problem 32.7

The requirement for a product that is purchased is given in Table 32.15. Assume that holding cost

is $10 per unit year and order cost is $25. Calculate the POQ; no shortage is permitted.

Using the basic EOQ formula:

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