Material Requirements Planning & Distribution Requirements Planning Material Requirements Planning & Distribution Requirements Planning ( MRP & DRP ) No formal readings SEEM 4610
Material Requirements Planning
&
Distribution Requirements Planning
Material Requirements Planning
&
Distribution Requirements Planning
( MRP & DRP )
No formal readings
SEEM 4610
Supply Chain Revisited
what happens in a supply chain?what happens in a supply chain?
Manufacturer
(Campbell’s )
Customer
(Park’n Shop
DC, Stores)Consumers
Customer places an
order
Chain Reaction
Customer order
Issuing orders + producing (1 wk)
Campbell’s Soup
Orders to Metal Processor
. . .
Can
Order to farms (1 wk )
Chicken
Chicken raising (30 wks). . .. . .
Hatching eggs(4 wks)
Waiting hens to lay eggs ( 3 mos)
Order to Steel Maker
Lessons
Someone along the
Soup chain must
carry stock/inventory
in some form before
seeing actual
order/”demand”
Make to stock
(produce/stock-up
according to plan)
How do you get the
plan?
MRP RequirementsMRP Requirements
• Computer system
• Mainly discrete products
• Accurate bill-of-material
• Accurate inventory status
– 99% inventory accuracy
• Stable lead times
MRP & Production Planning
Process
Forecast &
Firm Orders
MaterialRequirements
Planning
Resource
Availability
MasterProductionScheduling
How many and When for
Finished Goods?
APP
Aggregate Production
Planning: to balance overall
capacity and demand (hiring,
contracting, …)
– Ch. 8 (skip)
MRP System
Input & Output
MRP System
Input & Output
What to make
& whenWhat items
make up
the product Material
Requirements
Planning Sys.
What is in
stock
What items to
make & when
How long to
make items
What is on
order
MRP System
Input & Output
MRP System
Input & Output
Master
Production
ScheduleBill of
MaterialsMaterial
Requirements
Planning Sys.
Inventory
Status
Planned Order
& Other
Reports
Item MasterPurchasing
Data
Master
Production Schedule
Master
Production Schedule
Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Product A1 300 200 310 300
Product X3 300 450 310 330
• Shows items to be produced
– End item, customer order, module
• Derived from aggregate plan
• Example
Bill-of-MaterialBill-of-Material
• List of components & quantities needed to
make product
• Provides product structure (tree)
– Parents: Items above given level
– Children: Items below given level
• Shows low-level coding
– Top level is 0; next level is 1 etc.
Bill-of-Material
Product Structure Tree
Bill-of-Material
Product Structure Tree
Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assy (1)
P/N 1002
Wheels (2)
P/N 1003
Frame (1)
P/N 1004
Nature of MRP
• Use forecast to predict required amount of level 0 (end product)
• Use this number to determine number of lower level components needed (dependent demand)
Frame Seat Brake Kit
Hoop
Rim
Wire
Spokes
Front Wheel Rear Wheel
Bike Level 0
Level 1
Level 2
Level 3
Bill of Material
Example
Bill of Material
Example
Bill of Material
P/N: 1000 Name: Bicycle
P/N Desc Qty Units Level
1001 Handle Bars 1 Each 11002 Frame Assy 1 Each 1 1003 Wheels 2 Each 2 1004 Frame 1 Each 2
Product Structure Solution*Product Structure Solution*
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
5050
50 50 x 3 = 150x 3 = 15050 50 x 2 = 100x 2 = 100
150 150 x 2 = x 2 =
300300
150 150 x 1 = x 1 =
150150
300 300 x 1 = x 1 =
300300
300 300 x 2 = x 2 =
600600
100 100 x 3 = x 3 =
300300
100 100 x 2 = x 2 =
200200
Note: Note:
D: 200 + 600 = 800 D: 200 + 600 = 800
E: 300 + 150 = 450E: 300 + 150 = 450
Lead TimeLead Time
InputInput
MoveMove
TimeTime
QueueQueue
TimeTime
SetupSetup
TimeTime
RunRun
TimeTimeOutputOutput
WaitWait
TimeTime
Lead Times &
Product Structure
Lead Times &
Product Structure
1 2 3 4 5 6 7 8
2 2 wk.wk.
2 2 wk.wk.
1 1 wk.wk.
1 1 wk.wk.3 3 wk.wk.
FrameFrame
WheelsWheels
Handle BarsHandle Bars
BicycleBicycle
Frame Frame AssyAssy
Time (weeks)Time (weeks)
Lead timeLead time
MRP ReportMRP Report
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available Inventory 23 3 33 8 0
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Lead time = 3; lot policy = lotLead time = 3; lot policy = lot--forfor--lot (LFL); lot (LFL);
onon--hand = 20 units; safety stock = 0 units.hand = 20 units; safety stock = 0 units.
20202020
(Week #, beg. of Nov.)
MRP Example Component BMRP Example Component B
A master schedule calls for
starting (planned order release)
2 units of product X in week 1,
20 in week 2, & 10 in week 4.
The planned order releases for
product Y are 15 in week 4, and
15 in week 5. Determine the
gross requirements for
component B.
X
A(1) B(1)
Y
A(1) C(3)
Component B SolutionComponent B Solution
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 10
WeekQty
Gross Requirements BGross Requirements B
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
X
Thinking Challenge Component
C
Thinking Challenge Component
CA master schedule calls for
starting (planned order release)
2 units of product X in week 1,
20 in week 2, & 10 in week 4.
The planned order releases for
product Y are 15 in week 4, and
15 in week 5. Determine the
gross requirements for
component C.
X
A(1) B(1)
Y
A(1) C(3)
Component C Solution*Component C Solution*
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 4545
WeekQty
Gross Requirements CGross Requirements C
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
Thinking Challenge Component
A
Thinking Challenge Component
AA master schedule calls for
starting (planned order release)
2 units of product X in week 1,
20 in week 2, & 10 in week 4.
The planned order releases for
product Y are 15 in week 4, and
15 in week 5. Determine the
gross requirements for
component A.
X
A(1) B(1)
Y
A(1) C(3)
Component A Solution*Component A Solution*
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 1525
WeekQty
Gross Requirements AGross Requirements A
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
MRP ExampleMRP Example
Prepare a net requirements plan:
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available Inventory
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lotLead time = 3; lot policy = lot--forfor--lot (LFL); lot (LFL);
onon--hand = 20 units; safety stock = 0 units.hand = 20 units; safety stock = 0 units.
20202020
MRP Formulas (Formal & Complete)
• Available Inv. = “Total” On-hand
- Safety stock -Allocated
– T. on-hand is inventory physically present
– Allocated is inventory reserved for special
orders (say, for a R&D project)
• T. On-hand = Prior period's avail. inv.
+ Scheduled receipts
• Net requirement = Gross requirement
- Available Inv
Projected available inv. or Proj. on-hand
“Total” is often missing!
MRP
Problem 2
A master schedule calls for 50
units of F in week 6, & 60 in
week 8. On-hand levels are F
= 0, G = 20, & H = 60.
Another 20 units of G are
scheduled to be received in
week 4. Order quantities are
lot-for-lot except for H, which
has a lot size of 50 or
multiples of 50.
F(1)
LT = 2
G(1)
LT = 1
H(1)
LT = 2
H(4)
LT = 2
1 2 3 4 5 6 7 8
Gross Req. 50 60
Scheduled Rec.
Available Inv. 0 0 0 0 0 0 0 0
Net Requirements 50 60
Planned Ord. Rec. 50 60
Planned Ord. Rel. 50 60
Product F
Solution*
0000
1 2 3 4 5 6 7 8
Gross Req. 50 60
Scheduled Rec. 20
Available Inv. 20 20 20 0 0 0 0 0
Net Requirements 10 60
Planned Ord. Rec. 10 60
Planned Ord. Rel. 10 60
Component G Solution*
20202020
1 2 3 4 5 6 7 8
Gross Req. 40(G)
50(F)
240
(G)60(F)
Scheduled Rec.
Available Inv. 60 60 20 20 30 20 20 20
Net Requirements 30 220 30
Planned Ord. Rec. 50 250 50
Planned Ord. Rel. 50 250 50
Component H Solution*
60606060
Using Safety Stock
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available Inventory 21 1 31 6 6
Net Requirements 9
Planned Order Receipts 9
Planned Order Releases 9
Lead time = 3; lot policy = lotLead time = 3; lot policy = lot--forfor--lot (LFL); lot (LFL);
onon--hand = 20 units; hand = 20 units; safety stock = 2 unitssafety stock = 2 units..
18181818
Lot Size
• Lot: Batch of material that moves & gets
processed together
• Reduces setup & handling time & cost
• Techniques
– Lot-for-lot (LFL)
– Economic order quantity (EOQ)
– Part period balancing
Lot Size Effects
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available Inventory 23 3 33 8 0
Net Requirements 7
Planned Order Receipts 10
Planned Order Releases 10
Lead Time = 3; Lead Time = 3; Lot Size= 5 units (or Multiples)Lot Size= 5 units (or Multiples); ;
OnOn--Hand = 20 Units; Safety Stock = 0 Units.Hand = 20 Units; Safety Stock = 0 Units.
20202020
Summary of MRP Summary of MRP
• Some important terms
– Bill of materials – many applications
– Leadtimes
– Master production schedule (MPS: over a
planning horizon)
– Inventory status
– Scheduled receipts/deliveries
MRP logic has profound impact on SC planning
It is based on “push” philosophy, but the above concepts are useful in
a broad context
Summary of MRP Summary of MRP
Product XX
Component A Component B
Part A1 Part A6 Part B1 Part B2 …….
An “Explosion”
MRP IIMRP II
• MRP II is the extension of MRP to include other
resources such as labour hrs, costs, m/c
capacities, and other information, not just
material quantity
• MRP is the core part of MRP II
• Additional inputs to MRPII: standard hrs,
process “routes”, cost inform. , etc.
• MRP II can be used to perform short term cap.
Planning and cost evaluation
A Distribution Network A Distribution Network
Central DC
Region A DC Region B DC
DC A1 DC A10 DC B1 DC Bx …….
LTa1LTa10
LTb1
LTbx
LTbLTa
Local DC Demand Forecasts
WK 5 6 7 8 9 10
DC a1 10 12 0 20 30 15
DC a2 5 15 5 10 20 10
.
.
.
DC bx 20 12 15 20 25 30
Translating into Regional DC
• Lead-time information
WK 5 6 7 8 9 10
DC a1 10 12 0 20 30 15
DC a2 5 15 5 10 20 10
Should be available no later than 5 - LTa1
In DRP, diff. terms used!
Los Angeles Vitamin C Tablets 100/bottles
T. On-hand Balance 500 take S. stock out
Safety stock 200
Lead time (wk) 2
Lot-size 300
Past due 1 2 3 4 5 6 7 8
Forecast 100 120 90 110 120 100 80 120
In transit
Projected on-hand 300 200 80 290 180 60 260 180 60
Net Requirements 10 40
Plnd Shpmts-Rcpt.Date 300 300
Plnd Shpmts-Ship.Date 300 300
Montreal T. On-hand Balance 160
Safety stock 75
Lead time (wk) 2
Lot-size 150
0 1 2 3 4 5 6 7 8
Forecast 40 50 45 50 40 45 40 50
In transit 150
Projected on-hand 85 45 145 100 50 10 115 75 25
Plnd Shpmts-Rcpt.Date 0 0 0 0 0 150 0 0
Plnd Shpmts-Ship.Date 150
Hide net req’t!
DC 1 DC 2 DC n
2 wks4 wks
CDC
New York StoreT. On-hand Balance 300
Safety stock 100
Lead time (wk) 2
Lot-size 300
Past due 1 2 3 4 5 6 7 8
Forecast 120 130 115 125 140 110 125 105
In transit
Projected on-hand 200 80 250 135 10 170 60 235 130
Plnd Shpmts-Rcpt.Date 300 300 300
Plnd Shpmts-Ship.Date 300 300 300
2 3 4 5 6 7 8
LA 300 300
Montreal 150
NY 300 300 300
Vancouver 150
Toronto 150
Chicago 300 300
TOTALS 300 300 150 750 450 300 300 0 0
Summary at Central Distribution Center (Factory)
Past due 1
Week
DRP Before and After Changes in Demand
Los Angeles Vitamin C Tablets 100/bottles
On-hand Balance 500
Safety stock 200
Lead time (wk) 2
Lot-size 300
Before
Past due 1 2 3 4 5 6 7 8
Forecast 100 120 90 110 120 100 80 120
In transit
Projected on-hand 300 200 80 290 180 60 260 180 60
Plnd Shpmts-Rcpt.Date 300 300
Plnd Shpmts-Ship.Date 300 300
After
Past due 2 3 4 5 6 7 8
Forecast 120 90 110 120 100 80 120
In transit 300
Projected on-hand 130 10 220 110 290 190 110 290
Plnd Shpmts-Rcpt.Date 300 300
Plnd Shpmts-Ship.Date 300 300
MRP & DRP MRP & DRP
CDC DRP: what, when
& how much
needed at CDC
Prod Plan
MRP: what, when,
how much to
make or order
Model1
P#1 P#2
LT1 LT2
Only a few firms can do so!