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M&DC Purchasing & Supply Chain: Material Management

 

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Material Requirements Planning

 

Contents

Chapter 3 described the role of the master production schedule in showing the end items, or major components, that manufacturing intends to build. These items are made or assembled from components that must be available in the right quantities and at the right time to meet the master production schedule (MPS) requirements. If any component is missing, the product cannot be built and shipped on time. Material requirements planning (MRP) is the system used to avoid missing parts. It establishes a schedule (priority plan) showing the components required at each level of the assembly and, based on lead times, calculates the time when these components will be needed.

This chapter will describe bills of material (the major building block of material requirements planning), detail the MRP process, and explain how the material requirements plan is used. But first, some details about the environment in which MRP operates.

Nature of Demand

  • There are two types of demand: independent and dependent. Independent demand is not related to the demand for any other product. For example, if a company makes wooden tables, the demand for the tables is independent. Master production schedule items are independent demand items.

  • The demand for the sides, ends, legs, and tops depends on the demand for the tables, and these are dependent demand items.

  • Figure 4.1 is a product tree that shows the relationship between independent and dependent demand items. The figures in parentheses show the required quantities of each component.

  • Since independent demand is not related to the demand for any other assemblies or products, it must be forecast. However, since dependent demand is directly related to the demand for higher-level assemblies or products, it can be calculated. Material requirements planning is designed to do this calculation.\

  • An item can have both a dependent and an independent demand. A service or replacement part has both. The manufacturer of vacuum cleaners uses flexible hose in the assembly of the units. In the assembly of the vacuums, the hose is a dependent demand item. However, the hose has a nasty habit of breaking, and the manufacturer must have replacement hoses available. Demand for replacement hoses is independent since demand for them does not depend directly upon the number of vacuums manufactured.

  • Dependency can be horizontal or vertical. The dependency of a component on its parent is vertical. However, components also depend on each other (horizontal dependency). If one component is going to be a week late then the final assembly is a week late. The other components are not needed until later. This is also a dependency, and is called horizontal dependency. Planners are concerned with horizontal dependency when a part is delayed or there is a shortage, for then other parts will have to be rescheduled.

Objectives of MRP

  • Material requirements planning has two major objectives: determine requirements and keep priorities current.

Determine requirements.

  • The main objective of any manufacturing planning and control system is to have the right materials in the right quantities available at the right time to meet the demand for the firm’s products. The material requirements plan’s objective is to determine what components are needed to meet the master production

 

schedule and, based on lead time, to calculate the periods when the components must be available. It must determine the following:

  • What to order.

  • How much to order.

  • When to order.

  • When to schedule delivery.

Keep priorities current.

  • The demand for, and supply of, components changes daily. Customers enter or change orders. Components get used up, suppliers are late with delivery, scrap occurs, orders are completed, and machines break down. In this ever-changing world, a material requirements plan must be able to reorganize priorities to keep plans current. It must be able to add and delete, expedite, delay, and change orders.

Linkages to Other MPC Functions

  • The master production schedule drives the material requirements plan. The MRP is a priority plan for the components needed to make the products in the MPS. The plan is valid only if capacity is available when needed to make the components, and the plan must be checked against available capacity. The process of doing so is called capacity requirements planning and is discussed in the next chapter.

  • Material requirements planning drives, or is input to, production activity control (PAC) and purchasing. MRP plans the release and receipt dates for orders. PAC and purchasing must plan and control the performance of the orders to meet the due dates.

  • Figure 4.2 shows a diagram of the production planning and control system with its inputs and outputs.

The Computer

  • If a company makes a few simple products, it might be possible to perform material requirements planning manually. However, most companies need to keep track of thousands of components in a world of changing demand, supply, and capacity.

  • In the days before computers, it was necessary to maintain extensive manual systems and to have large inventories and long lead times. These were needed as a cushion due to the lack of accurate, up-to-date information and the inability to perform the necessary calculations quickly. Somehow, someone in the organization figured out what was required sooner, or very often, later than needed. “Get it early and get lots of it” was a good rule then.

  • Computers are incredibly fast, accurate, and ideally suited for the job at hand. With their ability to store and manipulate data and produce information rapidly, manufacturing now has a tool to use modern manufacturing planning and control systems properly. There are many application programs available that will perform the calculations needed in MRP systems. The computer software program that

  • organizes and maintains the bills of material structures and their linkages is called a bill of material processor.

Inputs to the Material Requirements Planning System

Master production

  • schedule. The master production schedule is a statement of which end items are to be produced, the quantity of each, and the dates they are to be completed. It drives the MRP system by providing the initial input for the items needed.

Inventory records.

  • A major input to the MRP system is inventory. When a calculation is made to find out how many are needed, the quantities available must be considered.

  • There are two kinds of information needed. The first is called planning factors and includes information such as order quantities, lead times, safety stock, and scrap. This information does not change often; however, it is needed to plan what quantities to order and when to order for timely deliveries.

  • The second kind of information necessary is on the status of each item. The MRP system needs to know how much is available, how much is allocated, and how
    much is available for future demand. This type of information is dynamic and changes with every transaction that takes place.

  • These data are maintained in an inventory record file, also called a part master file or item master file. Each item has a record and all the records together form the file.

Bills of material.

  • The bill of material is one of the most important documents in a manufacturing company. It will be discussed next.

  • Before we can make something, we must know what components are needed to make it. To bake a cake, we need a recipe. To mix chemicals together, we need a formula. To assemble a wheelbarrow, we need a parts list. Even though the names are different, recipes, formulas, and parts lists tell us what is needed to make the end product. All of these are bills of material.

  • The American Production and Inventory Control Society (APICS) defines a bill of material as “a listing of all the subassemblies, intermediates, parts, and raw materials that go into making the parent assembly showing the quantities of each required to make an assembly.” Figure 4.3 shows a simplified bill of material. There are three important points:

  1. The bill of material shows all the parts required to make one of the item.

  2. Each part or item has only one part number. A specific number is unique to one part and is not assigned to any other part. Thus, if a particular number appears on two different bills of material, the part so identified is the same.

  3. A part is defined by its form, fit, or function. If any of these change, then it is not the same part and it must have a different part number. For example, a part when painted becomes a different part and must have a different number. If the part could be painted in three different colors, then each must be identified with its unique number.

Part Number

Description

Quantity Required

203

Wooden Leg

4

411

Wooden Ends

2

622

Wooden Sides

2

23

Table Top

1

722

Hardware Kit

1

  • The bill of material shows the components that go into making the parent. It does not show the steps or process used to make the parent or the components. That information is recorded in a routing file. This file will be discussed in Chapters 5 and 6.

Bills of Material Structure

  • Bills of material structure refers to the overall design for the arrangement of bills of material files. Different departments in a company use bills of material for a variety of purposes. Although each user has individual preferences for the way the bill should be structured, there must be only one structure, and it should be designed to satisfy most needs. However, there can be several formats, or ways, to present the bill. Following are some important formats for bills.

Product tree.

  • Figure 4.4 shows a product tree for the bill of material shown in Figure 4.3. The product tree is a convenient way to think about bills of material, but it is seldom used except for teaching and testing. In this text, it is used for that purpose.

Parent—component relationship.

  • The product tree and the bill of material shown in Figures 4.1 and 4.3 are called single-level structures. An assembly is considered a parent, and the items that comprise it are called its component items. Figure 4.4 shows the parent—component relationship of the table (P/N 100). Unique part numbers have also been assigned to each part. This makes identification of the part absolute.

Multilevel bill.

  • Figure 4.5 shows the same product as the single-level bill shown in Figures 4.3 and 4.4. However, the single-level components have been expanded into their components.

  • Multilevel bills are formed as logical groupings of parts into subassemblies based on the way the product is assembled. For example, a frame, chassis, doors, windows, and engine are required to construct an automobile. Each of these forms a logical group of components and parts and, in turn, has its own bill of material.

  • It is the responsibility of manufacturing engineering to decide how the product is to be made: the operations to be performed, their sequence, and their grouping. The subassemblies created are the result of this. Manufacturing has decided to assemble the sides, ends, and leg supports (part of the hardware kit) of the table (P/N 100) in Figure 4.4 into a frame (P/N 300). The legs, leg bolts, and frame

 

 

  • subassembly are to be assembled into the base (P/N 200). The top (P/N 023) is to be made from three boards glued together. Note that the original parts are all there, but they have been grouped into subassemblies and each subassembly has its own part number.

  • One convention used with multilevel bills of material is that the last items on the tree (legs, leg bolts, ends, sides, glue, and boards) are all purchased items. Generally, a bill of material is not complete until all branches of the product structure tree end in a purchased part.

  • Each level in the bill of material is assigned a number starting from the top and working down. The top level, or end product level, is level zero, and its components are at level one.

Multiple bill.

  • A multiple bill is used when companies usually make more than one product, and the same components are often used in several products. This is particularly true with families of products. Using our example of a table, this company makes two models. They are similar except the tops are different. Figure 4.6 shows the two bills of material. Because the boards used in the top are different, each top has a different part number. The balance of the components are common to both tables.

 

  • method, the information has to be stored only once. For example, the frame (P/N 300) might be used on other tables with different legs or tops.
    There are several advantages to using single-level bills including the following:
     

    • Duplication of records is avoided. For instance, base 200 is used in both table 100 and table 150. Rather than have two records of base 200—one in the bill for table 100 and one in the bill for table 150—only one record need be kept.

    • The number of records and, in computer systems, the file size is reduced by avoiding duplication of records.

    • Maintaining bills of material is simplified. For example, if there is a change in base 200, the change need be made in only one place.

Single-level bill.

  •  A single-level bill of material contains only the parent and its immediate components, which is why it is called a single-level bill. The tables shown in Figure 4.6 have six single-level bills, and these are shown in Figure 4.7. Note that many components are common to both tables.

  • The computer stores information describing the product structure as a single-level bill. A series of single-level bills is needed to completely define a product. For example, the table needs four single-level bills, one each for the table, base, top, and frame. These can be chained together to form a multilevel, or indented, bill. Using this

 

EXAMPLE PROBLEM

  • Using the following product tree, construct the appropriate single-level trees. How many Ks are needed to make 100 Xs and 50 Ys?

 

Answer

 

Indented bill.

  • A multilevel bill of material can also be shown as an indented bill of material. This bill uses indentations as a way of identifying parents from components. Figure 4.8 shows an indented bill for the table in Figure 4.5.

  • The components of the parent table are listed flush left and their components are indented. The components of the base (legs, leg bolts, and frame) are indented immediately below their parent. The components of the frame are further indented immediately below their parent. Thus, the components of the frame are further indented immediately below their parent. Thus, the components are linked to their parents by indenting them as subentries and by listing them immediately below the parent.

Summarized parts list.

  • The bill of material shown in Figure 4.3 is called a summarized parts list. It lists all the parts needed to make one complete assembly.

Part Number

Description

Quantity Required

200

Base

1

203

Legs

4

220

Leg Bolts

4

300

Frame

I

622

Sides

2

411

Ends

2

533

Leg Supports

4

66

Glue

 

23

Tq

1

30

Boards

3

66

Glue

 

  • The parts list is produced by the product design engineer and does not contain any information about the way the product is made or assembled.

Planning bill.

  • A major use of bills of material is to plan production. Planning bills are an artificial grouping of components for planning purposes. They are used to simplify forecasting, master production scheduling, and material requirements planning. They do not represent buildable products but an average product. Using the table example, suppose the company manufactured tables with three different leg styles, three different sides and ends, and three different tops. In total, they are making 3 x 3 x 3 = 27 different tables, each with its own bill of material. For planning purposes, the 27 bills can be simplified by showing the percentage split for each type of component on one bill. Figure 4.9 shows how the product structure would look. The percentage usage of components is obtained from a forecast or past usage. Note the percentage for each category of component adds up to 100%.

Where-Used and Pegging

Where-used report.

  • Where-used reports give the same information as a bill of material, but the where-used report gives the parents for a component whereas the bill gives the components for a parent. A component may be used in making several parents. Wheels on an automobile for example might be used on several models of cars, A listing of all the parents in which a component is used is called a where-used report This has several uses, such as in implementing an engineering change, or when mate• rials are scarce, or in costing a product.

Pegging report.

  • A pegging report is similar to a where-used report. However, th pegging report shows only those parents for which there is an existing requirement

  • whereas the where-used report shows all parents for a component. The pegging report shows the parents creating the demand for the components, the quantities needed, and when they are needed. Pegging keeps track of the origin of the demand. Figure 4.10 shows an example of a product tree in which part C is used twice and a pegging report.

 

Uses for Bills of Material

  • The bill of material is one of the most widely used documents in a manufacturing company. Some major uses are as follows:

    • Product definition. The bill specifies the components needed to make the product.

    • Engineering change control. Product design engineers sometimes change the design of a product and the components used. These changes must be recorded and controlled. The bill provides the method for doing so.

 

Pegged Requirements

Item Number

Week

1

2

3

4

5

C

50

125

25

50

150

 

Source of Requirements

A

50

25

25

50

50

B

 

100

 

 

100

 

  • Service parts. Replacement parts needed to repair a broken component are determined from the bill of material.

  • Planning. Bills of material define what materials have to be scheduled to make the end product. They define what components have to be purchased or made to satisfy the master production schedule.

  • Order entry. When a product has a very large number of options (e.g., cars), the order-entry system very often configures the end product bill of materials. The bill can also be used to price the product.

  • Manufacturing. The bill provides a list of the parts needed to make or assemble a product.

  • Costing. Product cost is usually broken down into direct material, direct labor, and overhead. The bill provides not only a method of determining direct material but also a structure for recording direct labor and distributing overhead.

  • This list is not complete, but it shows the extensive use made of the bill of material in manufacturing. There is scarcely a department of the company that will not use the bill at some time. Maintaining bills of material and their accuracy is extremely important. Again, the computer is an excellent tool for centrally maintaining bills and for updating them.

  • Each component shown on the bill of material is planned for by the material requirements planning system. For convenience, it is assumed that each component will go into inventory and be accounted for. Whether the components actually go into a physical inventory or not is not important. However, it is important to realize that planning and control take place for each component on the bill. Raw material may go through several operations before it is processed and ready for assembly, or there may be several assembly operations between components and parent. These operations are planned and controlled by production activity control, not material requirements planning.

  • The purpose of material requirements planning is to determine the components needed, quantities, and due dates so items in the master production schedule are made on time. This section studies the basic MRP techniques for doing so. These techniques will be discussed under the following headings:

    • Exploding and offsetting

    • Gross and net requirements

    • Releasing orders

    • Low-level coding and netting

 

Exploding and Offsetting

  • Consider the product tree shown in Figure 4.11. It is similar to the ones used before but contains another necessary piece of information: lead times (LT).

Lead time.

  • Lead time is the span of time needed to perform a process. In manufacturing it includes time for order preparation, queuing, processing, moving, receiving and inspecting, and any expected delays. In this example, if B and C are available, it will take one week to assemble A. Thus, the lead time for A is one week. Similarly, if D and E are available, the time required to manufacture B is two weeks. The purchase lead times for D, E, and C are all one week.

  • In this particular product tree, the usage quantities—the quantity of components needed to make one of a parent—are all one. To make an A requires one B and one C, and to make a B requires one D and one E.

Exploding the requirements. Exploding

  • is the process of multiplying the requirements by the usage quantity and recording the appropriate requirements throughout the product tree.

Offsetting

  • Offsetting is the process of placing the exploded requirements in their proper periods based on lead time. For example, if 50 units of A are required in week 5, the order to assemble the As must be released in week 4, and 50 Bs and 50 Cs must be available in week 4.

  • Thus, there should be a planned order receipt for 50 in week 5 and a planned order release for that number in week 4. If an order for 50 As is to be released in week 4, 50 Bs and 50 Cs must be available in that week. Thus, there must be planned order receipts for those components in week 4. Since the lead time to assemble a B is two weeks, there must be a planned order release for the Bs in week 2. Since the lead time to make a C is one week, there must be a planned order release for 50 in week 3. The planned order receipts and planned order releases for the Ds and Es are determined in the same manner. Figure 4.12 shows when orders must be released and received so the delivery date can be met.

Example Problem

  • Using the product tree and lead times shown in Figure 4.11, complete the following table to determine the planned order receipts and releases. There are 50 As required in week 5 and 100 in week 6.

Answer

 

Gross and Net Requirements

  • The previous section assumed that no inventory was available for the As or any of the components. Often inventory is available and must be included when calculating quantities to be produced. If, for instance, there are 20 As in stock, only 30 need to be made. The requirements for component parts would be reduced accordingly. The calculation is as follows:

Gross requirement = 50
Inventory available = 20
Net requirements = gross requirements — available inventory

Net requirements = 50 — 20 = 30 units

Since only 30 As need to be made, the gross requirement for Bs and Cs is only 30.

The planned order release of the parent becomes the gross requirement of the component.

  • The time-phased inventory record shown in Figure 4.12 can now be modified tc consider any inventory available. For example, suppose there are 10 Bs available a~ well as the 20 As. The requirements for the components D and E would change Figure 4.13 shows the change in the MRP record.

Part Number

 

Week

 

 

1

2

3

4

5

A

Gross Requirements

 

 

 

 

50

Projected Available 20

20

20

20

 20

0

Net Requirements

     

 

 30

Planned Order Receipt

       

 30

Planned Order Release

     

 30

 

B

Gross Requirements

 

 

 

30

 

Projected Available 10

10

10

10

0

 

Net Requirements

 

 

 

20

 

Planned Order Receipt

 

 

 

20

 

Planned Order Release

 

 20

 

 

 

C

Gross Requirements

 

   

30

 

Projected Available

 

0

 

0

 

Net Requirements

     

30

 

Planned Order Receipt

     

30

 

Planned Order Release

   

30

 

 

D

Gross Requirements

0

20

 

 

 

Projected Available

 

0

     

Net Requirements

 

20

     

Planned Order Receipt

 

20

     

Planned Order Release

 20

 

     

E

Gross Requirements

0

20

 

 

 

Projected Available

 

0

     

Net Requirements

 

20

     

Planned Order Receipt

 

20

     

Planned Order Release

 20

 

     

Figure 4.13 Gross and net requirements.

Example Problem

  • Complete the following table. Lead time for the part is two weeks. The order quantity (lot size) is 100 units.

Week 1

2

3

4

Gross Requirements

50

45

20

Projected Available 75

 

 

 

Net Requirements

 

 

 

Planned Order Receipt

 

 

 

Planned Order Release

 

 

 

Answer

Week

1

2

3

4

Gross Requirements

 

50

45

20

Projected Available 75

75

25

80

60

Net Requirements

 

 

20

 

Planned Order Receipt

 

 

100

 

Planned Order Release

100

 

 

 

 

Released Orders

  • So far we have looked at the process of planning when orders should be released so work is done in time to meet gross requirements. In many cases, requirements change daily. A computer-based material requirements planning system automatically recalculates the requirements for subassemblies and components and re-creates planned order releases to meet the shifts in demand.

  • Planned order releases are just planned; they have not been released. It is the responsibility of the material planner to release planned orders, not the computer.
    Since the objective of the MRP is to have material available when it is needed and not before, orders for material should not be released until the planned order release date arrives. Thus, an order is not normally released until the planned order is in the current week (week 1).

  • Releasing an order means that authorization is given to purchasing to buy the necessary material or to manufacturing to make the component.
    Before a manufacturing order is released, component availability must be checked. The computer program checks the component inventory records to be sure that enough material is available and, if so, to allocate the necessary quantity to that work order. If the material is not available, the computer program will advise the planner of the shortage.

  • When the authorization to purchase or manufacture is released, the planned order receipt is canceled, and a scheduled receipt is created in its place. For the example shown in Figure 4.13, parts D and E have planned order releases of 20 scheduled for week 1. These orders will be released by the planner, and then the MRP records for parts D and E will appear as shown in Figure 4.14. Notice that scheduled receipts have been created, replacing the planned order releases.

  • When a manufacturing order is released the computer will allocate the required quantities of a parent’s components to that order. This does not mean the components are withdrawn from inventory but that the projected available quantity is reduced. The allocated quantity of components is still in inventory but they are not available for other orders. They will stay in inventory until withdrawn for use.

Scheduled receipts.

  • Scheduled receipts are orders placed on manufacturing or on a vendor and represent a commitment to make or buy. For an order in a factory, necessary materials are committed, and work-center capacity allocated to that order. For purchased parts, similar commitments are made to the vendor. The scheduled receipts row shows the quantities ordered and when they are expected to be completed and available.

Open orders.

  • Scheduled receipts on the MRP record are open orders on the factory or a vendor and are the responsibility of purchasing and of production activity control. When the goods are received into inventory and available for use, the order is closed out, and the scheduled receipt disappears to become part of the on-hand inventory.

Part Number

 

Week

1

2

3

4

5

D

Gross Requirements

0

20

 

 

 

Scheduled Receipts

 

20

     

Projected Available

 

0

     

Net Requirements

 

0

     

Planned Order Receipt

 

 

     

Planned Order Release

 

 

     

E

Gross Requirements

0

20

 

 

 

Scheduled Receipts

 

20

     

Projected Available

 

0

     

Net Requirements

 

0

     

Planned Order Receipt

 

 

     

Planned Order Release

 

 

     

 

Figure 4.14 Scheduled receipts.

Net requirements.

  • The calculation for net requirements can now be modified to include scheduled receipts.

Net requirements = gross requirements — scheduled receipts — available inventory

 

Example Problem

  • Complete the following table. Lead time for the item is two weeks, and the order quantity is 200. What action should be taken?

Week

1

2

3

4

Gross Requirements

50

250

100

50

Scheduled Receipts

 

200

   

Projected Available 150

 

 

   

Net Requirements

 

 

   

Planned Order Receipt

 

 

   

Planned Order Release

 

 

   

 

Week

1

2

3

4

Gross Requirements

50

250

100

50

Scheduled Receipts

100

200

150

 

Projected Available 150

200

50

50

100

Net Requirements

 

 

200

 

Planned Order Receipt

 

 

 

 

Planned Order Release

 

 

 

 

The order for 200 units should be released.

Basic MRP Record

  • Figure 4.15 shows a basic MRP record. There are several points that are important:

  1. The current time is the beginning of the first period.

  2. The top row shows periods, called time buckets. These are often a week but ca be any length of time convenient to the company. Some companies are moving to daily time buckets.

Part Number

 

Week

1

2

3

4

5

 

Gross Requirements

10

10

10

20

35

Scheduled Receipts

     

30

5

Projected Available 10

     

5

5

Net Requirements

     

 

 

Planned Order Receipt

     

 

 

Planned Order Release

     

 

 

Figure 4.15 Basic MRP record.

  1. The number of periods in the record is called the planning horizon, which shows the number of future periods for which plans are being made. It should be at least as long as the cumulative product lead time. Otherwise, the MRP system is not able to release planned orders of items at the lower level at the correct time.

  2. An item is considered available at the beginning of the time bucket in which it is required.

  3. The quantity shown in the projected on-hand row is the projected on-hand balance at the end of the period.

  4. The immediate or most current period is called the action bucket. A quantity in the action bucket means

Capacity Requirements Planning

  • As occurred in the previous planning levels, the MRP priority plan must be checked against available capacity. At the MRP planning level, the process is called capacity requirements planning (CRP). The next chapter examines this problem in some de. tail. If the capacity is available, the plan can proceed. If not, either capacity has to be made available or the priority plans changed.

Low-Level Coding and Netting

  • A component may reside on more than one level in a bill of material. If this is the case it is necessary to make sure that all gross requirements for that component have beer recorded before netting takes place. Consider the product shown in Figure 4.16 Component C occurs twice in the product tree and at different levels. It would be mistake to net the requirements for the Cs before calculating the gross requirement~ for those required for parent B.

  • The process of collecting the gross requirements and netting can be simplified ~- by using low-level codes. The low-level code is the lowest level on which a part resides
    in all bills of material. Every part has only one low-level code. The low-level codes for the parts in the product tree shown in Figure 4.16 are:

Part

Low-Level Code

 A

0

B

1

C

2

D

2

 

  • Low-level codes are determined by starting at the lowest level of a bill of material and, working up, recording the level against the part. If a part occurs on a higher level, its existence on the lower level has already been recorded.

  • Once the low-level codes are obtained, the net requirements for each part can be calculated using the following procedure. For the purpose of this exercise, there is a gross requirement for part A of 50 in week 5, all lead times are one week, and the following amounts are in inventory: A, 20 units; B, 10 units; and C, 10 units.

Procedure

  1. Starting at level zero of the tree, determine if any of the parts on that level have a low-level code of zero. If so, those parts occur at no lower level, and all the gross requirements have been recorded. These parts can, therefore, be netted and exploded down to the next level, that is, into their components. If the low level code is greater than zero, there are more gross requirements, and the part is not netted. In this example, A has a low-level code of zero so there is no further requirement for As; it can be netted and exploded into its components. Figure 4.17 shows the results.

  2. The next step is to move down to level 1 on the product tree and to repeat the routine followed in step 1. Since B has a low-level code of one, all

Low-Level Code

Part Number

 

Week

1

2

3

4

5

0

A

Gross Requirements

       

50

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 20

 20

 20

 20

20

 0

 

 

Net Requirements

 

 

 

 

30

 

 

Planned Order Receipt

 

 

 

 

 30

 

 

Planned Order Release

 

 

 

 30

 

1

B

Gross Requirements

 

 

 

30

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

 

 

 

 

 

 

 

Net Requirements

 

 

 

 

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

2

C

Gross Requirements

 

 

 

30

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

 

 

 

 

 

 

 

Net Requirements

 

 

 

 

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

Figure 4.17 Netting and exploding zero-level parts.

requirements for B are recorded, and it can be netted and exploded. The bill of material for B shows that it is made from a C and a D. Figure 4.18 shows the result of netting and exploding the Bs. Part C has a low-level code of two, which tells us there are further requirements for Cs and at this stage they are not netted.

  1. Moving down to level 2 on the product tree, we find that part C has a low-level code of two. This tells us that all gross requirements for Cs are accounted for and that we can proceed and determine its net requirements. Notice there is a requirement for 30 Cs in week 4 to be used on the As and a requirement of 20 Cs in week 3 to be used on the Bs. Looking at its bill of material, we see that it is a purchased part and no explosion is needed.

Figure 4.19 shows the completed material requirements plan. The process of level-by-level netting is now completed using the low-level codes of each part. The low-level codes are used to determine when a part is eligible for netting and exploding.

 

Low-Level Code

Part Number

 

Week

1

2

3

4

5

I

B

Gross Requirements

 

 

 

30

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

10

10

10

0

 

 

 

Net Requirements

 

 

 

20

 

 

 

Planned Order Receipt

 

 

 

20

 

 

 

Planned Order Release

 

 

20

 

 

2

C

Gross Requirements

 

 

20

30

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

 

 

 

 

 

 

 

Net Requirements

 

 

 

 

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

2

D

Gross Requirements

 

 

20

 

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available

 

 

 

 

 

 

 

Net Requirements

 

 

 

 

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

Figure 4.18 Netting and exploding first-level parts.

In this way, each part is netted and exploded only once. There is no time-consuming re-netting and re-exploding each time a new requirement is met.

 

Multiple Bills of Material

  • Most companies make more than one product and often use the same components in many of their products. The material requirements planning system gathers the planned order releases from all the parents and creates a schedule of gross requirements for the components. Figure 4.20 illustrates what happens. Part F is a component of both C and B.

  • The same procedure used for a single bill of material can be used when multiple products are being manufactured. All bills must be netted and exploded level by level as was done for a single bill.

  • Figure 4.21 shows the product trees for two products. Both are made from several components, but, for simplicity, only those components containing an F are shown

Low-Level Code

Part Number

 

Week

 

1

2

3

4

5

0

A

Gross Requirements

20

20

20

20

50

 

 

Scheduled Receipts

 

 

 

30

0

 

 

Projected Available 20

 

 

 

 

30

 

 

Net Requirements

 

 

 

 

30

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

1

B

Gross Requirements

10

10

10

30

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

 

 

 

 

 

 

 

Net Requirements

 

 

20

0

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

20

 

2

C

Gross Requirements

10

10

20

30

 

 

 

Scheduled Receipts

 

 

 

0

 

 

 

Projected Available 10

 

 

 

30

 

 

 

Net Requirements

 

10

0

30

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

30

 

 

2

D

Gross Requirements

0

0

20

 

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available

 

 

 

 

 

 

 

Net Requirements

 

20

0

 

 

 

 

Planned Order Receipt

 

 

 

 

 

 

 

Planned Order Release

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

20

 

 

Figure 4.19 Completed material requirements plan.

  • in the product tree. Note both have F as a component but at different levels in their product tree. All lead times are one week. The quantities required are shown in parentheses; that is, two Cs are required to make an A, one F is required to make a C, and two Fs are needed to make a B. Figure 4.22 shows the completed material requirements plan that would result if 50 As were required in week 5 and 30 Bs in week 3.

  • Scrap is usually stated as a scrap allowance. For example, a process may generate 15% scrap. The net requirement might be for 300 units. With a scrap allowance of 15% the process would be required to make 330 (1.0 — .15) 353 units.

 

  • The people who manage the material requirements planning system are planners. They are responsible for making detailed decisions that keep the flow of material moving into, through, and out of the factory. In many companies where there are thousands of parts to manage, planners are usually organized into logical groupings based on the similarity of parts or supply.
    The basic responsibilities of a planner are to:

    1. Launch (release) orders to purchasing or manufacturing.

    2. Reschedule due dates of open (existing) orders as required.

    3. Reconcile errors and try to find their cause.

    4. Solve critical material shortages by expediting or replanning.

    5. Coordinate with other planners, master production schedulers, production activity control, and purchasing to resolve problems.

Low-Level Code

Part Number

 

Week

1

2

3

4

5

0

A

Gross Requirements

 

 

 

 

50

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 20

20

20

20

20

0

 

 

Net Requirements

 

 

 

 

30

 

 

Planned Order Receipt

 

 

 

 

30

 

 

Planned Order Release

 

 

 

 30

 

0

B

Gross Requirements

 

 

30

 

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

10

10

 0

 

 

 

 

Net Requirements

 

 

20

 

 

 

 

Planned Order Receipt

 

 

20

 

 

 

 

Planned Order Release

 

 20

 

 

 

I

C

Gross Requirements

 

 

 

60

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available 10

10

10

10

0

 

 

 

Net Requirements

 

 

 

50

 

 

 

Planned Order Receipt

 

 

 

50

 

 

 

Planned Order Release

 

 

 50

 

 

2

F

Gross Requirements

 

40

50

 

 

 

 

Scheduled Receipts

 

 

 

 

 

 

 

Projected Available

 

0

0

 

 

 

 

Net Requirements

 

40

50

 

 

 

 

Planned Order Receipt

 

40

50

 

 

 

 

Planned Order Release

 40

50

 

 

 

Figure 4.22 Partial material requirements plan.

The material planner works with three types of orders: planned, released, and

Planned orders

  • Planned orders are automatically scheduled and controlled by the computer. As gross requirements, projected available inventory, and scheduled receipts change, the computer recalculates the timing and quantities of planned order releases. The MRP program recommends to the planner the release of an order when the order enters the action bucket but does not release the order.

Released orders.

  • Releasing, or launching, a planned order is the responsibility of the planner. When released, the order becomes an open order to the factory or to purchasing and appears on the MRP record as a scheduled receipt. It is then under the control of the planner, who may expedite, delay, or even cancel the order.

Firm planned orders.

  • The computer-based MRP system automatically recalculates planned orders as the gross requirements change. At times, the planner may prefer to hold a planned order firm against changes in quantity and time despite what the computer calculates. This might be necessary because of future availability of material or capacity or special demands on the system. The planner can tell the computer that the order is not to be changed unless the planner advises the computer to do so. The order is “firmed” or frozen against the logic of the computer.

  • The MRP software nets, offsets, and explodes requirements and creates planned order releases. It keeps priorities current for all planned orders according to changes in gross requirements for the part. But it does not issue purchase or manufacturing orders or reschedule open orders. However, it does print action or exception messages suggesting that the planner should act and what kind of action might be appropriate.
     

Exception messages.

  • If the manufacturing process is under control and the material requirements planning system is working properly, the system will work according to plan. However, sometimes there are problems that need the attention of the
    planner. A good MRP system generates exception messages to advise the planner when some event needs attention. Following are some examples of situations that will generate exception messages.

  • Components for which planned orders are in the action bucket and which should be considered for release.

  • Open orders for which the timing or quantity of scheduled receipts does not satisfy the plan. Perhaps a scheduled receipt is timed to arrive too early or late, and its due date should be revised.

  • Situations in which the standard lead times will result in late delivery of a zero-level part. This situation might call for expediting to reduce the standard lead times.

Transaction messages.

  • Transaction messages mean that the planner must tell the MRP software of all actions taken that will influence the MRP records. For example, when the planner releases an order, or a scheduled receipt is received, or when any change to the data occurs, the MRP program must be told. Otherwise, the records will be inaccurate, and the plan will become unworkable.

  • Material requirements planners must manage the parts for which they are responsible. This means not only releasing orders to purchasing and the factory, rescheduling due dates of open orders, and reconciling differences and inconsistencies, but also finding ways to improve the system and removing the causes of potential error. If the right components are to be in the right place at the right time, the planner must manage the process.

Managing the Material Requirements Plan

  • The planner receives feedback from many sources such as:

    • Suppliers’ actions through purchasing.

    • Changes to open orders in the factory such as early or late completions or differing quantities.

    • Management action such as changing the master production schedule.

  • The planner must evaluate this feedback and take corrective action if necessary. The planner must consider three important factors in managing the material requirements plan.

Priority.

  • Priority refers to maintaining the correct due dates by constantly evaluating the true due-date need for released orders and, if necessary, expediting or dc-expediting.

  • Consider the following MRP record. The order quantity is 300 units and the lead time is three weeks

Week

1

2