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Department
Economics
Course
ECON 1010
Professor
George Georgopoulos
Semester
Summer

Description
Chapter 14 - Material Requirements Planning CHAPTER 14 MATERIAL REQUIREMENTS PLANNING Review and Discussion Questions 1. Discuss the meaning of MRP terms such as planned order release and scheduled order receipts. A planned order release is an order currently planned to be released. It has not been released. Consequently, the planned order release can be changed based upon changes in demand as one example. A scheduled order receipt, on the other hand, reflects an order that has already been released. The scheduled order receipt indicates the anticipated arrival of the released order. Due to variations in delivery times, it may not arrive exactly at the planned arrival time. 2. Many practitioners currently update MRP weekly or biweekly. Would it be more valuable if it were updated daily? Discuss. The performance of any operation will naturally vary from day to day. When the observed time period in which performance is measured is a week or two, the daily variations are smoothed; that is, the variations in performance are averaged. For example, below-average performance in one day may be offset by a higher-than-average performance the next day. Daily MRP runs monitor performance too closely and may even create an exception report calling a normal variation an abnormal deviation from expected output. 3. What is the role of safety stock in an MRP system? The role of safety stock in an MRP system is to buffer any uncertainties in quantities. One cause of quantity uncertainties is quality. Safety lead time should be used to offset any uncertainties in timing, from such occurrences as production or purchase delays. The addition of safety stock results in extra inventory being carried, thus reducing performance. If possible, any uncertainties in the quantities should be eliminated so that no safety stock is needed. 4. Contrast the significance of the term lead time in the traditional EOQ context and in an MRP system. In the traditional context, lead time is fixed—either as a discrete time or as a probability distribution. Such lead time constancy or variation is outside of the inventory model. Lead time in an MRP system is assumed to be a variable. While specific lead times are stated for planning purposes, these times may be speeded up or delayed as conditions warrant. Indeed, it is this ability to detect needed changes in lead times—either by expediting or de-expediting—that many users cite as one of the most valuable features of MRP. 14-1 Chapter 14 - Material Requirements Planning 5. Discuss the importance of the master production schedule in an MRP system. The master production schedule “drives” the system. It states the planned due dates for end items. Material requirements planning computer runs, however, involve an iterative process. The master production schedule “proposes” or “hypothesizes” a tentative schedule. After the MRP run with this schedule, the shop scheduler examines the MRP plan for impractical loads on the productive system —either by stating excessive demands on personnel or equipment, or in excessive idle time. Then the master production schedule is revised and the program is run again. Because the entire MRP system is geared to satisfying the master production schedule, it is critical that the master production schedule be correct at the start of the first MRP run. The production scheduler then knows what effects any changes he makes on the schedule will have on the original MRP schedule. He can then take appropriate action as necessary, such as requesting that customers be contacted to try to extend promised dates if they are too close, or to arrange for early delivery or additional storage space if products will be completed prior to the promised delivery date. 6. “MRP just prepares shopping lists. It does not do the shopping or cook the dinner.” Comment. An MRP system generates schedules to meet material needs. It starts with the master schedule and develops a time phased schedule which specifies what, when, and how many units of each material are required. Whether this schedule is adhered to, depends first on the master scheduler who may change the schedule. Then an inventory control personnel may choose to change order quantities or timing. Then the purchasing department may make further modifications to a purchase order, and finally the production scheduler may actually release the work to production—(which may be at some time other than that called for in the MRP schedule). 7. What are the sources of demand in an MRP system? Are these dependent or independent, and how are they used as inputs to the system? An MRP system has both dependent and independent item demands. The major demands on the system occur through the master production schedule (these are usually of independent origin). From here on throughout the system, the demands are then dependent on the master production schedule. Orders for spare parts and repair parts normally do not go through the master production schedule unless their amounts are large enough to place a significant load on the productive system. These demands (which are usually independent) are fed into the inventory records file by-passing the master production schedule. Once there, they are then exploded into the required parts and materials needed during the normal course of the MRP run. The parts and materials needed to make the spares and repair parts are, therefore, dependent demand. 14-2 Chapter 14 - Material Requirements Planning 8. State the types of data that would be carried in the bill of materials file and the inventory record file. The Bill of Materials file contains information about the product, including a listing of parts numbers, quantities needed per unit or product, and the assembly or process flow stipulating how the unit is structured. Engineering design changes that affect the product structure are placed into the Bill of Materials file. Also, parts or material changes that occur through a change of vendors or material composition are also added to update the file. The Inventory Record file contains a great deal of information about each inventory item. At a minimum, the file would contain the number of units on hand and on order, the number reserved for prior commitments, the cost of the item, the name and address of the vendor, the lead time needed to obtain a shipment, and any shipment size restrictions. Additional information may be added as desired, such as that contained in Exhibit 14.8. Problems (sample MRP schedule worksheet) Period Item Gross requirements LT= Scheduled receipts On hand from prior period Net requirements Q= Planned order receipts Planned order releases Item Gross requirements Scheduled receipts LT= On hand from prior period Q= Net requirements Planned order receipts Planned order releases Item Gross requirements Scheduled receipts LT= On hand from prior period Q= Net requirements Planned order receipts Planned order releases Item Gross requirements LT= Scheduled receipts On hand from prior period Q= Net requirements Planned order receipts Planned order releases Item Gross requirements Scheduled receipts LT= On hand from prior period Q= Net requirements Planned order receipts Planned order releases 14-3 Chapter 14 - Material Requirements Planning Item Gross requirements Scheduled receipts LT= On hand from prior period Q= Net requirements Planned order receipts Planned order releases Item Gross requirements LT= Scheduled receipts On hand from prior period Q= Net requirements Planned order receipts Planned order releases Item Gross requirements Scheduled receipts LT= On hand from prior period Q= Net requirements Planned order receipts Planned order releases 1. X A(4) B(2) C(3) D(3) E(1) F(4) G(2) b. X A B C D E F G 10 40 15 29 27 -10 18 490 5 4 0 5 0 0 2. Period 1 2 3 4 5 6 7 8 9 10 Item Gross requirements 75 50 70 J Scheduled receipts LT= 1 On hand from prior pe40od 40 0 0 0 week Net requirements 35 50 70 Q= Planned order receipts 35 50 70 L4L Planned order release35 50 70 14-4 Chapter 14 - Material Requirements Planning 3. Period 1 2 3 4 5 6 7 8 9 10 Item Gross requirements 100 X Scheduled receipts LT= 1 On hand from prior per20d 20 20 20 20 20 20 20 20 20 Q= Net requirements 80 L4L Planned order receipts 80 Planned order releases 80 Item Gross requirements 160 Y Scheduled receipts LT= 2 On hand from prior per40d 40 40 40 40 40 40 40 40 Q= Net requirements 120 L4L Planned order receipts 120 Planned order releases 120 Item Gross requirements 240 Z Scheduled receipts LT= 3 On hand from prior per30d 30 30 30 30 30 30 30 30 Q= Net requirements 210 L4L Planned order receipts 210 Planned order releases 210 Item Gross requirements 420 120 A Scheduled receipts LT= On hand from prior period 2 50 50 50 50 50 50 0 Q== Net requirements 370 120 L4L Planned order receipts 370 120 Planned order releases 370 120 Item Gross requirements 240 B Scheduled receipts LT= On hand from prior period 1 100 100 100 100 100 100 100 Q== Net requirements 140 L4L Planned order receipts 140 Planned order releases 140 Item Gross requirements 840 C Scheduled receipts LT= On hand from prior period 3 900 900 900 900 900 900 60 60 60 60 Q== Net requirements L4L Planned order receipts Planned order releases 14-5 Chapter 14 - Material Requirements Planning 4. Level Z 0 A(2) B(4) 1 C(3) D(4) 2 E(2) 3 Period 1 2 3 4 5 6 7 8 9 10 Item Gross requirements 50 Z Scheduled receipts LT= On hand from prior period 2 Q= Net requirements 50 L4L Planned order receipts 50 Planned order releases 50 Item Gross requirements 100 A Scheduled receipts LT= 1 On hand from prior period Q= Net requirements 100 L4L Planned order receipts 100 Planned order releases 100 Item Gross requirements 200 B LT= Scheduled receipts 1 On hand from prior period Q= Net requirements 200 L4L Planned order receipts 200 Planned order releases 200 Item Gross requirements 300 C Scheduled receipts LT= On hand from prior period 1 Q= Net requirements 300 L4L Planned order receipts 300 Planned order releases 300 Item Gross requirements 400 D Scheduled receipts LT= 1 On hand from prior period Q= Net requirements 400 L4L Planned order receipts 400 Planned order releases 400 14-6 Chapter 14 - Material Requirements Planning Item Gross requirements 800 E Scheduled receipts LT= On hand from prior period 3 Q= Net requirements 800 L4L Planned order receipts 800 Planned order releases 800 5. Level A 0 C 1 B(3) B 2 E(2) D E(2) D E(2) D(2) 3 F F F 4 Period 1 2 3 4 5 6 7 8 9 10 Item Gross requirements 30 A Scheduled receipts LT= 10 2 On hand from prior per0od 0 10 10 10 10 10 10 0 0 Q= Net requirements 20 L4L Planned order receipts 20 Planned order releases 20 Item Gross requirements 50 60 B LT= Scheduled receipts 1 On hand from prior period 0 0 Q= Net requirements 50 60 L4L Planned order receipts 50 60 Planned order releases 50 60 Item Gross requirements 20 C Scheduled receipts LT= On hand from prior period 1 10 10 10 10 10 10 40 40 40 40 Q= Net requirements 10 50 Planned order receipts 50 Planned order releases 50 Item Gross requirements 50 60 40 D Scheduled receipts LT= 2 On hand from prior period 0 0 40 Q= Net requirements 50 60 0 50 Planned order receipts 50 100 Planned order releases 50 100 Item Gross requirements 100 220 E LT= Scheduled receipts 50 1 On hand from prior per50d 100 100 100 0 180 180 180 180 180 Q= Net requirements 200 220 Planned order receipts 400 Planned order releases 400 14-7 Chapter 14 - Material Requirements Planning Item Gross requirements F 400 LT= Scheduled receipts 50 On hand from prior pe150d 200 200 200 1 Q= Net requirements 200 L4L Planned order receipts 200 Planned order releases 200 6. Product structure tree Level A 0 B(2) C(3) D(2) 1 E F(2) F(2) D 2 D(2) 3 Low-level coded product structure tree Level A 0 B(2) C(3) 1 E F(2) F(2) 2 D(2) D D(2) 3 Indented bill of materials Single level bill of materials .A A .B(2) B(2) .E C(3) .D(2) D(2) .F(2) B 14-8 Chapter 14 - Material Requirements Planning .C(3) E .F(2) F(2) .D C .D(2) D F(2) E D(2) Period 1 2 3 4 5 6 7 8 9 10 Item Gross requirements A 20 LT= Scheduled receipts 1 On hand from prior period Q= Net requirements L4L 20 Planned order receipts 20 Planned order releases 20 Item Gross requirements B 40 LT= Scheduled receipts 2 On hand from prior period Q= Net requirements L4L 40 Planned order receipts 40 Planned order releases 40 Item Gross requirements C 60 LT= Scheduled receipts 1 On hand from prior per15d 15 15 15 15 15 15 Q= Net requirements 45 L4L Planned order receipts 45 Planned order releases 45 Item Gross requirements 100 45 40 D LT= Scheduled receipts 1 On hand from prior per50d 50 50 0 0 0 0 Q= Net requirements 50 45 40 L4L Planned order receipts 50 45 40 Planned order releases 50 45 40 Item Gross requirements 40 E LT= Scheduled receipts 20 2 On hand from prior period 0 20 20 20 30 30 30 30 30 Q= Net requirements 20 50 Planned order receipts 50 Planned order releases 50 Item Gross requirements 80 90 F Scheduled receipts LT= 1 On hand from prior period Q= Net requirements 80 100 10 10 10 10 180 Planned order receipts 180 Planned order releases 180 14-9 Chapter 14 - Material Requirements Planning 7. Level A 0 B 1 C(4)
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