Ch 21 - Material Requirements Planning Flashcards
In the case of Apples material costs and their margins…
Material:
- Memory $80
- Touchscreen and display $130
- Processor $23
- Cameras $12
- Wi-Fi and sensors $15
- Battery and power management $42
- Other items $50
- Box and charger $6
- Manufacturing cost $10
So, for a total cost of about $368, Apple can build an iPad that it sells for about $700. Of course, this does not include the cost to transport the iPad and other support costs, but a profit of $332 is not bad.
What is material requirements planning (MRP)?
material requirements planning (MRP), which is the key piece of logic that ties the production functions together from a material planning and control view. MRP has been installed almost universally in manufacturing firms, even those considered small companies. The reason is that MRP is a logical, easily understandable approach to the problem of determining the number of parts, components, and materials needed to produce each end item. MRP also provides the schedule specifying when each of these items should be ordered or produced.
MRP is based on dependent demand. Dependent demand is caused by the demand for a higher-level item. Tires, wheels, and engines are dependent demand items based on the demand for automobiles, for example. So it is essental to determine the quantity of the dependent demand.
“The logic for determining the number of parts, components, and materials needed to produce a product.”
How to determine the number of dependent demand items?
Determining the number of dependent demand items needed is essentially a straightforward multiplication process. If one Part A takes five parts of B to make it, then five parts of A require 25 parts of B. The basic difference in independent demand, covered in Chapter 20, and dependent demand covered in this chapter, is as follows: If Part A is sold outside the firm, the amount of Part A that we sell is uncertain. We need to create a forecast using past data or do something like a market analysis. Part A is an independent item. However, Part B is a dependent part and its use depends on Part A. The number of B needed is simply the number of A times five.
This could be or or less an issue dependent on where in the value chain the company is positioned.
Where can MRP be used?
MRP is most valuable in industries where a number of products are made in batches using the same productive equipment.
MRP is most valuable to companies involved in assembly operations and least valuable to those in maketo-order fabrication. One more point to note: MRP does not work well in companies that produce a low number of units annually. Especially for companies producing complex, expensive products requiring advanced research and design, experience has shown that lead times tend to be too long and too uncertain, and the product configuration too complex. Such companies need the control features that network scheduling techniques offer.
To ensure good master scheduling, the master scheduler (the human being) must do what?
∙ 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.
The master schedule
Generally, the master production schedule deals with end items (typically finished goods items sold to customers) and is a major input to the MRP process. If the end item is quite large or quite expensive, however, the master schedule may schedule major subassemblies or components instead.
All production systems have limited capacity and limited resources. This presents a challenging job for the master scheduler. Although the aggregate plan provides the general range of operation, the master scheduler must specify exactly what is to be produced.
These decisions are made while responding to pressures from various functional areas such as the sales department (meet the customer’s promised due date), finance (minimize inventory), management (maximize productivity and customer service, minimize resource needs), and manufacturing (have level schedules and minimize setup time).
What is a master production schedule (MPS)?
The master production schedule (MPS) is the time-phased plan specifying how many of each end item the firm plans to build and when. For example, the aggregate plan for a furniture company may specify the total volume of mattresses it plans to produce over the next month or next quarter. The MPS goes the next step down and identifies the exact size of the mattresses and their qualities and styles.
What is time fences?
The question of flexibility within a master production schedule depends on several factors: production lead time, commitment of parts and components to a specific end item, relationship between the customer and vendor, amount of excess capacity, and the reluctance or willingness of management to make changes. The purpose of time fences is to maintain a reasonably controlled flow through the production system. Unless some operating rules are established and adhered to, the system could be chaotic and filled with overdue orders and constant expediting.
Under these rules, frozen could be defined as anything from absolutely no changes in one company to only the most minor of changes in another. Slushy may allow changes in specific products within a product group so long as parts are available. Liquid may allow almost any variations in products, with the provisions that capacity remains about the same and that there are no long lead time items involved.
MATERIAL REQUIREMENTS PLANNING SYSTEM STRUCTURE
The material requirements planning portion of manufacturing activities most closely interacts with the master schedule, bill-of-materials file, inventory records file, and output reports.
How does the MRP system works?
the MRP system works as follows: The master production schedule states the number of items to be produced during specific time periods. A bill-of-materials file identifies the specific materials used to make each item and the correct quantities of each. The inventory records file contains data such as the number of units on hand and on order. These three sources—master production schedule, bill-of-materials file, and inventory records file—become the data sources for the material requirements program, which expands the production schedule into a detailed order scheduling plan for the entire production sequence.
What are the sources for demand?
Product demand for end items comes primarily from two main sources. The first is known customers who have placed specific orders, such as those generated by sales personnel, or from interdepartment transactions. These orders usually carry promised delivery dates. There is no forecasting involved in these orders—simply add them up. The second source is the aggregate production plan (described in Chapter 19). The aggregate plan reflects the firm’s strategy for meeting demand in the future. The strategy is implemented through the detailed master production schedule.
What is “bill of materials”?
The bill-of-materials (BOM) file contains the complete product description, listing the materials, parts, and components; the quantity of each item; and also the sequence in which the product is created. This BOM file is one of the three main inputs to the MRP program. (The other two are the master schedule and the inventory records file.)
The BOM file is often called the product structure file or product tree because it shows how a product is put together. It contains the information to identify each item and the quantity used per unit of the item of which it is a part
Inventory Transactions File
The inventory status file is kept up-to-date by posting inventory transactions as they occur. These changes occur because of stock receipts and disbursements, scrap losses, wrong parts, canceled orders, and so forth.
MRP and ERP
MRP programs are integrated into ERP systems offered by companies such as SAP and Oracle.
