Mark M.

Davis Janelle Heineke

OPERATIONS MANAGEMENT
INTEGRATING MANUFACTURING AND SERVICES
FIFTH EDITION

PowerPoint Presentation by Charlie Cook, The University of West Alabama Copyright 2005, The McGraw-Hill Companies, Inc.

CHAPTER

15

Inventory Systems for Dependent Demand

PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright 2005 The McGraw-Hill Companies. All rights reserved.

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 an MRP system. Define the elements that make up 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.
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Managerial Issues
Demand for components and services that are highly variable and dependent on the demand for the end product. Integrating materials requirements planning (MRP) into enterprise resource planning (ERP) systems to reduce inventory and lead times. The use of MRP to provide accurate information for shop-floor control of inventories, processes and due dates.

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Master Production Schedule

Master Production Schedule (MPS)
A time-phased production plan that specifies how many of, and when to build, each end item.

Material Requirements Planning

Determines the number of subassemblies, components, and raw materials required and their build dates to complete a given number of end products by a specific date.

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How MRP Integrates the Manufacturing Function

Exhibit 15.1
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How ERP Integrates Organizational Functions

Exhibit 15.2
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Integrating MRP and JIT into the Supply Chain

Exhibit 15.3
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Master Production Schedule

Time Fences
Periods of time with each period having some specified level of opportunity for the customer to make changes. Frozen
Make no or only insignificant changes to products.

Moderately firm
Allow some changes in specific products.

Flexible
Allow almost any variation in products.

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Master Production Schedule Time Fences

Exhibit 15.4
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Material Requirements Planning (MRP) Systems

Materials Requirements Planning System
Creates requirements and schedules identifying the parts, components, and materials necessary to produce the end products specified in the MPS. Links inventory and scheduling systems.

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Goals, Objectives, and Philosophy of MRP

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

Assign Operating Priorities

Order with the right due date and keep the due date valid.

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

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Inventory Management Under MRP

Theme
Getting the right materials to the right place at the right time.

Objectives
Improve customer service. Minimize inventory investment. Maximize production operating efficiency.

Philosophy
Expedite materials only if the overall production schedule will be delayed. De-expedite materials if schedule falls behind.
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Benefits of an MRP System

More competitive pricing Lower selling price Lower inventory levels Improved customer service Faster response to market demands Increased flexibility to change the master schedule Reduced setup and tear-down costs Reduced idle time

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Benefits of an MRP System (contd)

Gives advanced notice so managers can see the planned schedule before the orders are actually released. Tells when to de-expedite as well as expedite as orders change. Delays/cancels orders or changes quantities as customers adjust their orders to market requirements. Advances or delays order due dates as required. Aids capacity planning by identifying bottlenecks.

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Where MRP Can Be Used

Industries with a job-shop environment in which a number of products are made in batches using the same production equipment. Companies involved in assembly operations and least valuable to those in fabrication. Firms with products that have a large number of levels in the product in terms of subassemblies and components.

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Industry Applications and Expected Benefits

Exhibit 15.5
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MRP System Structure

Demand for Products
Available-to-promise: future production not encumbered by an outstanding customer order. Demand for spare parts and supplies

Bill of Material (BOM) File

A list of subassemblies, components, and raw materials, and their respective quantities required to produce specific end items
Also, called a product structure or product tree file

Low level coding: placing identical items on the same level in the product hierarchy.
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Overall View of the Inputs to a Standard Materials Requirements Planning Program and the Reports Generated by the Program

Exhibit 15.6
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Product Structure Tree for Rolling Desk Chair

Exhibit 15.7
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Subassemblies and Parts List for a Rolling Desk Chair in an Indented Format and in a Single-Level Format
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Exhibit 15.8
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Product L Hierarchy in (A) Expanded to the Lowest Level of Each Item in (B)

Exhibit 15.9
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MRP System Structure (contd)

Inventory Records File
Computerized record-keeping system for the inventory status of all subassemblies, components, and raw materials. Peg record file (also where-used file)
Traces a material requirement upward in the product structure to identify its parent item.

Inventory transaction file

Shows changes that result from stock receipts and disbursements, scrap and obsolescence losses, wrong parts, and cancelled orders.
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The Inventory Status Record for an Item in Inventory

Exhibit 15.10
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MRP Computer Program

Output Reports
Primary reports
Planned orders Order release notices Changes in due dates Cancellations or suspensions of open orders Inventory status data

Secondary reports
Planning reports Performance reports Exceptions reports

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Product Structure Tree for Product T

*Subassemblies or parts that have been previously ordered but are not scheduled for delivery until a future date (week three for subassembly U in this example).

Exhibit 15.11
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Materials Requirements Plan for Completing 100 units of Product T in Period 8

Exhibit 15.12
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The Environment of the Master Scheduler

Source: Romeyn C. Everdell and Woodrow W. Chamberlain, Master Scheduling in a Multi-Plant Environment, Proceedings of the American Production and Inventory Control Society (1980), p. 421. Reprinted with permission.

Exhibit 15.13
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The Aggregate Plan and the Master Production Schedule for Mattresses

Exhibit 15.14
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Master Scheduling
To ensure good master scheduling, the master scheduler (a person) must
Include all demands from product sales, warehouse replenishment, spares, and interplant requirements. Never lose sight of the aggregate plan. Be involved with customer order promising. Be visible to all levels of management. Objectively trade off manufacturing, marketing, and engineering conflicts. Identify and communicate all problems.
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Capacity Requirements Planning (CRP)

Capacity Requirements Planning (CRP)
The process through which capacity is computed and how capacity constraints are addressed.
From the work-center view, if there is adequate capacity, the priority becomes which job to do first. If there is insufficient capacity, however, the capacity leveling problem must be resolved by the master scheduler Backward and forward scheduling.

Work Center
A functionally defined center where jobs routed to it require the same type of work, on the same type of equipment.
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Capacity Requirements Planning (CRP)

Utilization
A measure of the actual time that machines are used.

Efficiency
A measure of how well a machine is performing while it is being used; a comparison of actual performance to a defined standard output or an engineering design rate.

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Workload for Work Center A

Exhibit 15.15
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Scheduled Workload for Work Center A

Exhibit 15.16
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Manufacturing Resource Planning (MRP II)

MRP II
An advanced MRP system that takes into consideration the equipment capacities and other resources associated with a manufacturing facility. A total, companywide system that allows everyone (buyers, marketing staff, production, accounting) to work with the same game plan and use the same numbers. A system with a simulation capability that allows a firm to plan and test alternative strategies.

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Manufacturing Resource Planning (MRP II)

Sales and Operations Planning (S&OP)
Extends MRP by aligning customer demand with both in-house and supplier resources. Outputs of the S&OP process include
a revised sales plan a production plan inventory levels customer lead times or backlogs

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Manufacturing Resource Planning (MRP II)

Options for Decoupling Supply from Demand
Producing to order or to inventory Adjusting customer lead times or backlogs Changing capacity (e.g., working overtime or adding another shift)

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Lot Sizing in MRP Systems

Lot Sizing
Lot sizes are the part quantities issued in the planned order receipt and the planned order release sections of an MRP schedule.

Lot-Sizing Techniques
Lot-for-lot Economic order quantity (EOQ) Least total costs Least unit cost
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Lot-for-Lot Method of Determining Production Quantities

Exhibit 15.17
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MRP in Services
Point-of-sale (POS) terminals
An the inventory management system (one or more cash registers) connected to a central computer located either on-site or at a remote location. The POS terminals are designed for single-item pricing, where a single key represents a specific item on the menu. For each item sold, the system automatically posts the price of an item and subtracts all of the items ingredients from the inventory records file.

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