Production & Operations

Management - 2
Part 1

© 2006 Prentice Hall, Inc. 14 – 1

Day 3 Sessions 5 & 6

Operations
Management
BOM- MRP 1 of 2

© 2006 Prentice Hall, Inc. 14 – 2

Prepared by Subir Ganguly for POM 2- Praxis Business Management Program
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 Complex to Simple
types of
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Assembly 14 – 4
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 Bills of Material

 List of components, ingredients,

and materials needed to make
product
 Provides product structure
 Items above given level are called
parents
 Items below given level are called
children

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 BOM Example

Level Product structure for “Awesome” (A)

0 A

1 B(2) Std. 12” Speaker kit C(3) Std. 12” Speaker kit w/
amp-booster

2 E(2) E(2) F(2) Std. 12” Speaker

booster assembly

Packing box and

3 D(2) installation kit of wire, G(1) D(2)
bolts, and screws

Amp-booster

12” Speaker 12” Speaker

© 2006 Prentice Hall, Inc. 14 – 10

 BOM Example
Level Product structure for “Awesome” (A)
0 A
Part B: 2 x number of As = (2)(50) = 100
Std. 12” Speaker300
kit w/
1 BPart
(2)
C:
Std. 12” 3 x number
Speaker kit of As = (3)(50)
C =
(3) amp-booster
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
2 Part E: E(2) 2 x number of Bs E(2) F(2) Std. 12” Speaker
+ 2 x number of Cs = (2)(100) + (2)(150) booster
= assembly
500
Part F: 2 x Packing
numberbox
ofandCs = (2)(150) = 300
3 D(2) Part G: 1installation
x numberkitofofFs =
wire, (1)(300)
G(1) = D(2) 300
bolts, and screws

Amp-booster

12” Speaker 12” Speaker

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 Bills of Material

 Planning Bills
 Created to assign an artificial parent
to the BOM
 Used to group subassemblies to
reduce the number of items planned
and scheduled
 Used to create standard “kits” for
production

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 B.O.M Sample

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 Learning Objectives

 Material requirements planning

 Distribution requirements planning
 Enterprise resource planning
 How ERP works
 Advantages and disadvantages of
ERP systems

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 Independent and dependent
demand
• A demand is independent if it is needed
for its own.
– The demand of end-products are usually
independent.
• Dependent demand is a demand for items
that are subassemblies or component
parts to be used in production of finished
goods.
• Once the independent demand is known,
the dependent demand can be determined.
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 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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Effective use of dependent demand inventory
models requires the following

1. Master production schedule

2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times

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 MRP

Material Requirements Planning

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 MRP

• …is a planning and scheduling technique

used for batch production of assembled
items.

• … is a computer-based information
system that translates master schedule
requirements for end items into time-
phased requirements for subassemblies,
components, and raw materials.

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 Inputs of MRP
• Master production schedule: states which end
products are to be produced, when and in what
quantities.
– Inputs of the master schedule are customer orders and
forcasts. Separates the planning horizonts into time
buckets. It should cover the cumulative lead time.

• Bill-of-Materials (BOM): a listing of all of the raw

materials, parts, subassemblies, and assemblies
needed to produce one unit of a product.

• Inventory records: Includes information on the

status of each item by time period (Gross
requirements, scheduled receipts, amount on hand,
lead times, lot sizes, etc.)

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 MRP 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

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 MRP Processing
• Net requirements
– Actual amount needed in each time
period
• Planned-order receipts
– Quantity expected to be 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
• Net requirements
– Actual amount needed in each time
period
• Planned-order receipts
– Quantity expected to be 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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 Aggregate
Production Plan
Months January February
Aggregate Production Plan 1,500 1,200
(shows the total
quantity of amplifiers)
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
(shows the specific type and
quantity of amplifier to be
produced
240 watt amplifier 100 100 100 100
150 watt amplifier 500 500 450 450
75 watt amplifier 300 100

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 The Planning Process

Production Marketing Finance

Capacity Customer Cash flow
Inventory demand

Procurement Human resources

Supplier Manpower
performance planning

Management Engineering
Return on Aggregate Design
investment production completion
Capital plan

Change
production
Master production plan?
schedule

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 The Planning Process
Master production
schedule Change
master
Change production
requirements? Material schedule?
requirements plan
Change
capacity? Capacity
requirements plan

No Is capacity Is execution
Realistic? plan being meeting the
met? plan?
Yes
Execute capacity
plans

Execute
material plans

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 Master Production Schedule
(MPS)
 Specifies what is to be made and when
 Must be in accordance with the aggregate
production plan
 Aggregate production plan sets the
overall level of output in broad terms
 The MPS is the result of the production
planning process

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 Master Production Schedule
(MPS)
Can be expressed in any of the
following terms:
 A customer order in a job shop (make-
to-order) company
 Modules in a repetitive (assemble-to-
stock) company
 An end item in a continuous (make-to-
stock) company

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 Focus for Different
Process Strategies
Make to Order Assemble to Order Stock to Forecast
or Forecast
(Process Focus) (Repetitive) (Product Focus)
Number of
end items Schedule finished
product

Typical focus of the

master production Schedule modules
schedule

Schedule orders
Number of
inputs

Examples: Print shop Motorcycles Steel, Beer, Bread

Machine shop Autos, TVs Lightbulbs
Fine-dining restaurant Fast-food restaurant Paper

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 Lead Times

 The time required to purchase,

produce, or assemble an item
 For purchased items – the time
between the recognition of a need
and the availability of the item for
production
 For production – the sum of the
order, wait, move, setup, store, and
run times

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 Time-Phased Product
Structure
Must have D and E
Start production of D completed here so
production can
begin on B
1 week
2 weeks to
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
| | | D | | | | |

1 2 3 4 5 6 7 8
Time in weeks
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 Processing MRP
(assembly time chart)
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

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 MRP
• Based on the master schedule, it is
• working backward from the due date using
lead times and other information,
• to determine when and how much to order
from materials, components,
subassemblies etc.
• So that ordering, fabrication, and
assembly can be scheduled for timely
completition of end items while inventory
leveles are kept low.

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 MRP Structure
Data Files Output Reports

MRP by
BOM Master period report
production schedule
MRP by
date report

Lead times
(Item master file) Planned order
report

Inventory data
Purchase advice
Material
requirement
planning
programs
(computer and Exception reports
Purchasing data software)
Order early or late
or not needed

Order quantity too

small or too large

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