Operations Management Flashcards

Operations Management: Material Requirement Planning

Resource Planning Framework for Goods and Services

• Aggregate planning: Development of a long-term output and resource plan in aggregate units of measure.
• Managers have several options when developing aggregate plans in the face of fluctuating demand:
  • Demand management
  • Production-rate changes
  • Workforce changes
  • Inventory changes
  • Facilities, equipment, and transportation adjustments

Disaggregation

• Disaggregation: The process of translating an aggregate plan into short-term operational plans. These plans provide the basis for weekly and daily schedules and detailed resource requirements.
• Techniques for disaggregating aggregate plans into executable operations plans:
  • Master production scheduling (MPS)
  • Materials requirements planning (MRP)

Master Production Schedule (MPS)

• Master Production Schedule (MPS): Deals with end items (finished goods items sold to customers).
  • It serves as a major input to the MRP process.
• Bill of Material: The complete product description.

MPS Example

The aggregate plan shows overall monthly mattress production quantities without specifying the type. The MPS breaks this down to show quantities of each type (model), along with information about the production time frame (weekly).

• Aggregate Production Plan for Mattresses example:
  • Month 1: 900
  • Month 2: 950
• Master Production Schedule for Mattress Models example:
  • Model 327:
    • Week 1: 200
    • Week 2: 400
    • Week 3: 200
    • Week 4: 100
  • Model 538:
    • Week 5: 100
    • Week 6: 100
    • Week 7: 150
    • Week 8: 100
  • Model 749:
    • Week 1: 100
    • Week 2: 200
    • Week 3: 200

Dependent Demand

• Dependent Demand: Demand directly related to the demand of other SKUs and can be calculated without needing to be forecasted.
  • Bill of materials (BOM): Hierarchical relationships between all items that comprise a finished good, purchased parts, and manufactured in-house parts.
  • Bill of labor (BOL): Hierarchical record analogous to a BOM that defines labor inputs necessary to create a good or service.

Dependent Demand - Key terms

• End items: Finished goods scheduled in the MPS or FAS that must be forecasted.
• Parent item: Manufactured from one or more components.
• Components: Any item other than an end item that goes into a higher-level parent item.
• Subassembly: Composed of at least one immediate parent and at least one immediate component.

Example of a Bill of Material and Dependent Demand

• A is the end Item.
• B and F are components of A.
• C, D, G, and H are components of B.
• E is a component of D.
• I is a component of H.
• The number of each component need to create the components above it is specified.

Dependent Demand Calculations example

Assume that we wish to produce 100 units of end item A

Materials Requirements Planning (MRP)

• Materials Requirements Planning (MRP): A forward-looking, demand-based approach for planning the production of manufactured goods and ordering materials and components.
  • Aims to minimize unnecessary inventories and reduce costs.

Output of MRP System

• Time-phased report that provides:
  • Schedule for obtaining raw materials and purchased parts for the purchasing department.
  • Detailed schedule for manufacturing the product and controlling manufacturing inventories for production managers.
  • Production information that drives cash flow, budgets, and financial needs for accounting and financial functions.

Time Phasing and Lot Sizing in MRP

• Dependent demand requirements are time-phased.
• MRP explosion: Process of using the logic of dependent demand to calculate the quantity and timing of orders.
• Time buckets: Time period size used in the MRP explosion process, often one week in length.
• Methods for MRP:
  • Lot-for-lot (LFL): Ordering schedule that covers the gross requirements for each week.
  • Fixed order quantity (FOQ): Uses a fixed order size for every order or production run.

MRP Record

Consists of:

• Gross requirements (GR): Total demand for an item derived from all of its parents.
• Scheduled or planned receipts (S/PR): Orders that are due or planned to be delivered.
• Planned order receipt (PORec): Specifies the quantity and time an order is to be received.

MRP Record - continued

Consists of:

• Planned order release (PORel): Specifies the planned quantity and time an order is to be released to the factory or a supplier.
• Projected on-hand inventory (POH): Expected amount of inventory on-hand at the beginning of the time period (or available balance).
  • Considering on-hand inventory from the previous period, plus scheduled receipts or planned order receipts, minus the gross requirements.
  • Projected \space on \space hand \space inventoryt = projected \space on \space hand \space inventory{t-1} – gross \space requirementt + scheduled \space receiptst + planned \space order \space receipts_t

Example Of MRP

• MPS calls for 150 units of product A to be completed in week 4; 300 units in week 5; 50 units in week 6; and 200 units in week 7. We assume that the lead time is one week. MPS in the figure below shows the demand for product A.
• Item Inventory File:
  • Product A (end item):
    • Lead Time: 1 week
    • Week 4: 150
    • Week 5: 300
    • Week 6: 50
    • Week 7: 200
  • Item C:
    • Lead Time: 2 weeks
    • Lot size: LFL
    • Scheduled receipts: 200
    • Projected OH inventory: 10
    • Gross requirements:
      • Week 3: 300
      • Week 4: 600
      • Week 5: 100
      • Week 6: 400
  • Item B:
    • Lead Time: 1 week
    • Lot size: 800 units
    • Projected OH inventory: 100
    • Gross requirements:
      • Week 1: 90
      • Week 2: 600
      • Week 3: 250
      • Week 4: 700
      • Week 5: 50
      • Week 6: 200
  • Item D:
    • Lead Time: 1 week
    • Lot size: LFL
    • Scheduled receipts: 50
    • Projected OH inventory: 40
      • Gross requirements:
      • Week 3: 150
      • Week 4: 300
      • Week 5: 50
      • Week 6: 200