Detailed Scheduling and Planning (Lesson 4)

UUnit nit 22 DDetailed etailed SScheduling cheduling aand nd PPlanning lanning Lesson 4 Basic MRP Logic

Unit 2

Detailed Scheduling and Planning

Unit 2

Detailed Scheduling and Planning

© 2004 e - SCP -The Centre for Excellence in Supply Chain Management No portion of this publication may be reproduced in whole or in part. The Leading Edge Group will not be responsible for any statements, beliefs, or opinions expressed by the authors of this workbook. The views expressed are solely those of the authors and do not necessarily reflect any endorsement by The Leading Edge Training Institute Limited. This publication has been prepared by E-SCP under the guidance of Yvonne Delaney MBA, CFPIM, CPIM. It has not been reviewed nor endorsed by APICS nor the APICS Curricula and Certification Council for use as study material for the APICS CPIM certification examination.

The Leading Edge Training Institute Limited Charter House Cobh Co Cork Ireland

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Detailed Scheduling and Planning Preface............................................................................................................4 Course Description................................................................................................................. 4

Lesson 4 – Basic MRP Logic...........................................................................5 Introduction and Objectives.................................................................................................. 5 Material Planning Process..................................................................................................... 5 MRP Design Features ............................................................................................................ 6 Operation and Performance of Material Planning Process............................................... 8 MRP Mechanics.................................................................................................................... 10 Starting Requirements for MRP......................................................................................... 11 MRP Grid.............................................................................................................................. 11 Low-Level Codes .................................................................................................................. 12 MRP Calculations ................................................................................................................ 14 Gross Requirements of Independent Demand from the MPS ......................................... 14 Bill of Material for items A and F....................................................................................... 16 Gross Requirements of Independent Demand for Service Parts ..................................... 16 Inventory Status ................................................................................................................... 16 Net Requirements and Planned Orders ............................................................................. 17 Lower Level Gross Requirements – Level 1...................................................................... 17 Level 1 Gross Requirements................................................................................................ 20 Determining Level 1 Net Requirements and Planned Orders ......................................... 20 Level 2 Gross Requirements................................................................................................ 22 MRP Exercise ....................................................................................................................... 24 Summary ............................................................................................................................... 27 Further Reading ................................................................................................................... 27 Review ................................................................................................................................... 28 What’s Next? ........................................................................................................................ 29

Appendix.......................................................................................................30 Answers to Review Questions .............................................................................................. 31

Glossary ........................................................................................................33

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Detailed Scheduling and Planning Preface Course Description This document contains the fourth lesson in the Detailed Scheduling and Planning unit, which is one of five units designed to prepare students to take the APICS CPIM examination. Before completing the Detailed Scheduling and Planning unit, you should complete the Basics of Supply Chain Management unit or gain equivalent knowledge. The five units that cover the CPIM syllabus are: Basics of Supply Chain Management Detailed Scheduling and Planning Master Planning of Resources Execution and Control of Operations Strategic Management of Resources Please refer to the preface of Lesson 1 for further details about the support available to you during this course of study. This publication has been prepared by E-SCP under the guidance of Yvonne Delaney MBA, CFPIM, CPIM. It has not been reviewed nor endorsed by APICS nor the APICS Curricula and Certification Council for use as study material for the APICS CPIM certification examination.

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Detailed Scheduling and Planning Lesson 4 – Basic MRP Logic Introduction and Objectives This lesson examines in detail the logical processes involved in material requirements planning (MRP). Beginning with the system inputs, the processing steps are explained through a progression of worksheet examples and exercises, showing how each input factor affects MRP processing and how the MRP outputs are calculated. On completion of this lesson you will be able to: Identify components of an MRP spreadsheet Detail initial requirements for the planning process Perform the netting process for a given MRP record Explode a set of MRP records to produce a complete material plan Explain the characteristics and workings of a rolling schedule Describe the necessity for low- level codes Explain how low- level codes are used Identify alternative techniques for handling various planning factors

Material Planning Process Business Strategy Plan

Sales and Operations Plan Planning Master Production Schedule

Material Requirements Planning (MRP)

Implementation

Purchasing and Production Activity Control (PAC)

Master Plan

Material requirements planning (MRP) is a set of techniques or system that uses bill of material (BOM) data, the master production schedule (MPS), and inventory data to calculate requirements for materials and make recommendations regarding purchases. MRP has been the most widely implemented large-scale production management system since the early 1970s. It originated in the early 1960s in the U.S. as a computerized approach for the planning of materials acquisition and production. Previously, MRP was practiced manually at more aggregated levels. Using computers, the technique can be applied in more detail making it more effective for the planning and management of material.

Originally developed for companies with highly engineered assembled products, it is now the most widely used material planning system in businesses involving chemical, pharmaceutical, food, service, heavy industry, remanufacturing, and complex processes. MRP Model MRP takes several inputs and converts them by means of logical processing, into useful outputs that are essential for further planning. The inputs include:

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MPS - The anticipated production schedule for all BOM or inventory purchasing components that are assigned to the master scheduler. Bill of Material (BOM) for every parent item - A list of all the components and their quantities that are needed to assemble a finished product. Inventory status information for every part - A statement of physical stock on hand, material allocated or released to orders but not yet drawn from physical stock, and scheduled receipts. Planning data – This includes lead-time, scrap factors, lot size, and safety stock. MRP then converts this information into a schedule of planned purchase order releases to suppliers, an internal schedule of planned work order releases, and a series of action notices. MPS

Schedule of Planned Order Releases

BOMs MRP Inventory Status

Schedule of Planned Production Order Releases

Planning Data

Action Notices

Functions of MRP MRP helps in the planning and control of inventory. It determines the items required, the quantities required, and the dates on which they should be ordered, ensuring that orders are released on an appropriate date to ensure required due dates are met. It also ensures that the due dates are valid when circumstances change. It provides a schedule of planned production order releases that can be used in capacity requirements planning and constraint management. The principal functions of MRP are: To plan and control inventories Plan and control work order and purchase order releases Provide accurate planned order loading for capacity requirements planning (CRP)

MRP Design Features Planning Horizon The length of the planning horizon is influenced by the cumulative lead times of the items being planned. MRP must plan further into the future than the longest cumulative lead time of the planned items. MRP works by predating or offsetting the order release date for an item from its due date by the lead time for that item. If the planning horizon is too short, MRP may generate order releases for past dates at the lowest level. With multilevel product structures, the effects of lot sizing and successive lead-time offsetting lead to a loss of horizon. The explosion of © Copyright Leading Edge Training Institute Limited

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Detailed Scheduling and Planning

the bill of material tends to diminish the planning horizon as MRP progresses from the parent level to the next lower one. Short planning horizons prohibit the application of some lot-sizing techniques and limit capacity requirements planning (CRP) for lower leve l items, such as fabricated parts, where CRP often provides most benefit. Over- long planning horizons lead to wasted effort as, generally, the further into the future we plan, the greater likelihood that unexpected events will make the plan unviable. Time Buckets With MRP, time is typically represented as a series of weekly intervals or buckets, although the unit of time can be hours, days, weeks, or months. In most manufacturing processes, the units of time are in weeks at the general MRP level and in days at the shop floor level. The master production schedule (MPS) and MRP are usually run weekly so as to have a new set of information every week for the agreed time span. Usually the MPS has a time span of between 12 and 18 months. The first 13 weeks are detailed and fixed, whereas the next 13 weeks are flexible and not as detailed. The next time period and beyond are very flexible, usually in intervals of months. Occasionally, the use of weekly buckets can lead to undesirable discrepancies such as the delivery on Thursday of material required for an order the previous Tuesday. In such cases, a bucket-less system may be used where the time-phased data is displayed as dated records rather than buckets. Alternatively, planners may decide to use daily buckets for the first several days, weekly buckets for the next few weeks, and monthly buckets for the rest. Frequency of Replanning As there are continual changes to inventory status and therefore material requirements, it is important to run MRP frequently to ensure all changes are taken into account and that the plan remains valid. Sometimes there are frequent small changes, leading to constant material plan changes, which cause disruption to planners, vendors and production floor. This is sometimes termed nervousness. It may be caused by changes in the MPS, supplier deliveries, item quality, order quantities, safety stock requirements, lead times, design, safety, data mistakes and unplanned transactions. Dynamic production environments demand frequent replanning but this may also cause nervousness: changes in higher level MRP planning lead to many changes of time and quantity on lower level item requirements. Firm Planned Orders It is up to the planner to judge whether the changes in the replanned MRP are significant enough to warrant action. A useful way to suppress MRP nervousness is to use firm planned orders. MRP recalcula tes planned orders as net requirements change. Sometimes it may be preferable to hold a planned order firm against changes in quantity and time. For example, some suppliers will not allow changes to orders close to the due date. © Copyright Leading Edge Training Institute Limited

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The due date, release date and order quantity of firm planned orders in MRP cannot be changed unless the planner authorizes the change. In addition, MRP does no t allow another planned order for that item to exist in the same time bucket. The firm planned order is therefore fixed against MRP logic and may be used as a tool for manipulating load, beating prices increases and adjusting orders to compensate for shutdowns or other events. Firm planned orders may be completely firm or only partially fixed. For example, in an organization where recent inventory checks have revealed mistakes related to inventory levels in the MRP system, a firm planned order may be fixed in quantity only, to override the MRP suggested order. Pegging Pegging, or ‘where-used’, analysis is used to identify the source of requirements. It is a feature of MRP systems allowing the planner to trace requirements for low- level products up through the product structure to determine the originating requirement for the parent product. For example, the demand for hinges in a furniture- making company is analyzed and reveals that 30% of the demand is for pine kitchen dressers, a further 40% is for fitted kitchen cabinets, 20% is for bedroom cabinets, and the final 10% is for free standing blanket boxes. Pegging is useful to determine what orders will be affected if supplier delivery for a particular component or item will be late. This will help the planner prioritize critical orders and channel the available parts to those orders. 1. Which of the following is NOT a function of MRP? A. To plan and control inventories B. To plan and control work orders and purchase orders Review Q

C. To schedule operations D. To provide accurate loading information to the CRP system

Operation and Performance of Material Planning Process MRP should be easy to use, with a simple data entry process involving the fewest possible keystrokes per transaction. Bar coding can be useful to speed up data entry and reduce the possibility of data entry errors. More recently, MRP systems have tended to follow the client-server model in computer system architecture. Client-server MRP systems exist on a computer network. All data is maintained in a central database on the server, which is usually a powerful machine maintained in a secure physical location. Client Client computers on the network have electronic access to this data, allowing them to view the data, add data, modify and perhaps delete data. However, all clients are modifying a single central data repository. No data is stored on the client computer. Clients act as an interface © Copyright Leading Edge Training Institute Limited

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Detailed Scheduling and Planning between user and server, processing requests for information retrieval or storage. They are usually located on computers near workstations. Although not concerned with the actual storage of data, clients usually do some data processing, for example: Interpretation or translation of user requests into a format understood by the server computer Verificatio n of user identity and authorization level prior to forwarding commands to the server Validation of user commands: for example, not allowing a user to enter an order quantity that falls outside lot-sizing regulations for a particular item. Server The server is a passive repository of information. It responds to requests from client computers. Ideally, the server provides a standardized transparent interface to clients so that the client computer does not need to be aware of the specifics of the system (hardware and software) providing the service. The server is usually physically accessible only to IT support staff and is often protected by an uninterruptible power supply (UPS) system to ensure that data does not become lost or corrupted. Performance Characteristics The MRP system should be constantly monitored, comparing MRP plans with actual execution. MRP reports delinquencies of allocated, gross requirements; scheduled receipts; and projected available and planned order releases for each item. From these, the planner may generate reports of deviations from plan and the causes of those deviations. In addition, item inactivity, inventory investment, and purchase commitments may be used to measure MRP performance. To measure MRP performance it is necessary to: Set clear objectives for the MRP system Allocate resources to the measurement process Assign responsibility for measuring MRP Measure performance accurately Identify and correct the causes of problems Reward success Learn from all successes and failures There are many metrics that can be used to measure MRP performance. In any given situation, the aims and objectives of the company will help to determine the most effective metrics. Some ways in which MRP performance may be monitored include the measurement of: Orders without shortages

Orders released on time

Due dates met

Late start dates

Time spent waiting for materials

Rescheduled orders

Actual and planned order lead times

Number of orders expedited

Action message trends

Actual and planned stock levels

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Detailed Scheduling and Planning MRP Training By doubling the amount of money spend on training in MRP procedures, can result in a return on investment of up to four-to-one. This is because employees are more likely to understand the workings of MRP and its significance to the whole company. They are more confident and more likely to take risks, experiment, and attempt problem resolution. Those at management level and those with particular responsibility for MRP need intensive training. A first step to devising an MRP training programme is to evaluate existing employee skill sets. Then, the desired skill set for each level of employee with respect to MRP should be determined by management and HR. It is important that each employee understand the benefits of MRP to the company and the impact of their own personal inputs to the overall system. It is vital that employees enter data accurately and on time. Company processes, transaction forms, and relevant examples should be used to help employees understand the benefits of MRP. Training employees can lead to them assuming greater personal ownership of the system. An essential part of training in MRP is to make employees aware of the need for problemsolving and innovation. They should understand the importance of finding problem causes and developing solutions to those problems to prevent them occurring again. The training should be a hands-on approach supported by the use of system specific transactions where employees ‘learn by doing’ in a controlled environment.

MRP Mechanics The starting point for MRP is the plan for satisfying independent demand, which is derived from the MPS. The MPS can be thought of as the plan for the demand for products. Production planning must balance what the company has with what it can produce. Materials and capacity must be sufficient to meet demands. The material in a company’s products cannot exceed the component material the company has to work with. A balance must be reached between component material and demand material. This requires balance of both capacity and material. Production planning is concerned with ensuring balance of capacity and material. How and when these balances are reached depends on the manufacturing environment. Sometimes material is wholly independent of capacity and other times it is not. When capacity and material are independent of each other, it does not signify whether capacity or materials are planned first. Material requirements planning valances materials, by planning for all components and raw materials needed to satisfy the MPS. MRP calculates the items, the quantities, the due dates and, when lead times are factored in, the order release dates, required to fulfil the MPS. The second job MRP must handle is that of material planning maintenance. In a constantly changing environment, where deliveries and work orders may be delayed and inventory records may be inaccurate, MRP must maintain a valid plan with valid quantities and due dates. The MRP planner uses due dates to establish an order of priority for the jobs on hand. MRP advises the production planner when orders should be changed, expedited or delayed to meet required due dates.

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Detailed Scheduling and Planning Starting Requirements for MRP The starting point for MRP is the MPS, accurate inventory data and a bill of material for each item produced by the company. The inventory data must provide information of item counts on hand, on order and allocated. MRP cannot function effectively if any of the inputs are missing. It is also essential that the information is accurate. The old computer adage of "garbage in, garbage out" is very true in the case of materials management systems. If transactions or data are entered incorrectly at any point in the process, the results can be both embarrassing and costly. The importance of having accurate data at every stage of the process cannot be over stressed.

MRP Grid The MRP grid records such information as the order quantity, the safety stock, allocated quantit ative, low- level code and lead time for an item along with the gross requirements, scheduled receipts, projected available inventory, net requirements, planned order receipts, and planned order releases for that item in each time bucket or time period in the planning horizon.

Figure 1 Example of MPS

MRP uses the MPS information (see the example above) on products required along with a bill of material for each product to calculate the amount of each inventory item required. It then compares this against the available inventory records to calculate how much of these items are available and how much must be manufactured or purchased. An example of a multilevel bill of material is shown below: Chair Chair 100 100 Base Base 200 200

Seat Seat 622 622

Back Back 500 500

Legs Legs(4) (4) 201 201

Frame Frame 629 629

Brace Brace 512 512

Braces Braces (2) (2) 203

Seat Seat Pad Pad 631 631

Arms Arms (2) (2) 570 570

Supports Supports(5) (5) 545 545

Figure 2 Example of a multilevel BOM

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Each of the items at the lowest level must be available for the chair to be produced. For each item, an MRP grid should be maintained to track availability and orders. A typical MRP grid for an item is illustrated in the table below: Lead Time 3 days,

Lot size 25,

Safety Stock, 0,

Component Part No:

Quantity on hand 60

Period

F131

1

2

3

4

5

6

Gross Requirements

20

30

30

20

30

20

50

Scheduled Receipts Stock on hand

60

40

10

30

10

-20

-40

PAB

60

40

10

30

10

30

10

Net Requirements

10

Planned Order Receipts

25

Planned Order Releases

MRP calculates material s form the product structure and due dates. Capacity checks are then used to ensure the MRP calculations are valid and achievable.

Low-Level Codes Each level of the BOM can be identified by a level code. Usually the final product is set at level 0. The items at the next level of the BOM (the base, seat and back components shown in Figure 2 on page 11) are level 1. Level 2 contains items needed to produce level 1 items and so on. These codes are used in low- level coding. The low level code for any item is the lowest level of any BOM that uses that item. Net requirements for that item are not calculated until all gross requirements have been calculated down to that level. Low- level coding is used as a signal to the software to begin computing requirements for each item .Some bills of material have many items and the software recomputes net requirements frequently. Use of the low level code eases and speeds computations. The following graphic illustrates a three level BOM: Chair Chair 100 100 Base Base 200 200

Seat Seat 622 622

Back Back 500 500

Legs Legs(4) (4) 201 201

Frame Frame 629 629

Brace Brace 512 512

Braces Braces (2) (2) 203

Seat Seat Pad Pad 631 631

Arms Arms (2) (2) 570 570

Supports Supports(5) (5) 545 545

Figure 3 Level Bill of Material

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Detailed Scheduling and Planning Low Level Codes and Requirements Calculations To cut out unnecessary calculations, the requirements for an item are not calculated until the low level code for that item is reached. The following example explains the concept: Two BOMs are displayed in tabular form below, each requiring part number 9. In product B, part number 9 is at level 2 of the BOM, while in product A, it appears at level 5. The low level code for part 9 is therefore 5. MRP will not review requirements for part 9 along with other level 2 parts (3, 4, and 11) because it occurs at level 5 in product A. It will be reviewed after requirements for parts 7 and 8 have been determined. Parent Part No: B BOM Level 0

Rocking Chair

Part No.

Description

Qty

UM

B

Rocking Chair

1

EA

1

1

Base

4

EA

1

10

Leg

2

EA

2

11

Brace

1

EA

2

9

Fixing dowels

6

EA

1

2

3

4

5

6

7

8

9

0

Parent Part No: A BOM Level 0

Dresser

Part No.

Description

Qty

UM

A

Dresser

1

EA

1

1

Base

1

EA

1

2

Back

1

EA

2

3

Bench

1

EA

2

4

Rack

1

EA

3

5

Glass door

3

EA

3

6

Wood door

3

EA

4

7

Shelf

2

EA

4

8

drawer

3

EA

9

Fixing dowels

20

EA

1

2

3

4

5

6

7

8

0

5

9

Figure 4 BOM for product A

The graphic to the right illustrates the netting process in MRP for the two BOMs above. Note that although item 9 appears at level 2 in product B, it is not netted until all the other parts have been netted as it occurs at the lowest level, level 5, in product A. The low- level code of part 9 is 5.

0

A

1

1

2

5

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3 4

B

5 7

1 4

10 9

11

6 8 9

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Detailed Scheduling and Planning MRP Calculations The calculation of material requirements begins by extracting gross requirements for items from the MPS. Then, at each level of the BOM for each item whose low level code is equal to the level at which MRP is currently being calculated, net requirements are calculated, by taking into account the gross requirements, inventory on-hand, scheduled receipts, allocations and required safety stock levels.

BOM Level 0

These net requirements are converted into planned order receipts, using the lot sizing method for the item in question. Depending on lot sizing rules, some order receipts may exceed net requirements so inventory on-hand must be increased accordingly. Planned order releases are calculated by offsetting planned order receipts by the lead time for the item in question. The planned order releases are added to the gross requirements for items at the next level of the BOM and the entire process begins again at the next level. The process is illustrated in the following graphic: MPS Gross Requirements

Safety Stock

Scheduled receipts

Net Requirements Allocations

Go to next period Lot Size Planned Order Receipt

Lead Time Available Inventory

Planned Order Release

Available inventory

No Are all periods calculated? Yes

BOM Level 1

Go to next BOM level

Level 0 Planned Order Releases Gross Requirements

Safety Stock

Scheduled receipts

Net Requirements Allocations

Go to next period Lot Size Planned Order Receipt

Lead Time Available Inventory

Planned Order Release

Available inventory

No Are all periods calculated? Yes

BOM Level 2

Go to next BOM level

Level 1 Planned Order Releases Gross Requirements

Safety Stock

Scheduled receipts

Net Requirements Allocations

Go to next period Lot Size Planned Order Receipt

Lead Time Available Inventory

Planned Order Release

Available inventory

No Are all periods calculated? Yes Go to next BOM level

Gross Requirements of Independent Demand from the MPS The following MRP grid shows gross requirements (quantities required to support parent orders) for several items. Gross requirements come from a higher level of planning. Here, they are derived from the MPS. Gross requirements for lower level items are derived from their parent products. © Copyright Leading Edge Training Institute Limited

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Item

1

Technique : Lot for lot

Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

A

Safety Stock

Planned Order Receipts

Lead Time (wks)

2

Planned Order Releases

Technique : Lot for lot

Gross Requirements

Order Quantity

Scheduled Receipts

Safety Stock

Planned Order Receipts

Lead Time (wks)

1

Planned Order Releases

Technique : Lot for lot

Gross Requirements

Order Quantity

Scheduled Receipts

Safety Stock

20

7

8

9

200

20

40

40

20

20

20

Projected Avail. Net Requirements

Low Level Code

1

Planned Order Receipts

Lead Time (wks)

1

Planned Order Releases

Technique

6

Net Requirements

0

B

5

Projected Avail.

Low Level Code

Allocated Qty

4

Net Requirements

0

F

3

Projected Avail.

Low Level Code

Allocated Qty

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Detailed Scheduling and Planning

Gross Requirements

Order Quantity

150

Allocated Qty

240

Safety Stock

Scheduled Receipts

D

Projected Avail. Net Requirements

Low Level Code

1

Planned Order Receipts

Lead Time (wks)

1

Planned Order Releases

Technique : Lot for lot

Gross Requirements

Order Quantity

Scheduled Receipts

300

Allocated Qty

C

Projected Avail.

Safety Stock

30

Low Level Code

2

Planned Order Receipts

Lead Time (wks)

2

Planned Order Releases Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

E

Safety Stock

20

20

20

20

20

20

240

Net Requirements

Technique : Lot for lot 280

20

Projected Avail. Net Requirements

Low Level Code

2

Planned Order Receipts

Lead Time (wks)

1

Planned Order Releases

Table 1 MRP Grid

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Detailed Scheduling and Planning Bill of Material for items A and F The following tables provide some BOM information for items A and F. You will need this information, as well as the information in Table 1, page 15 to answer some of the questions in this lesson. Parent Part No: A BOM Level 0

1

2

Part No. 3

4

5

6

7

8

(Parent)

Lead time (weeks)

Qty

Unit of Measure

9

0

A

2

EA

1

B

(A)

1

1

EA

1

C

(A)

2

2

EA

1

D

(A)

1

2

EA

2

C

(B)

2

2

2

E

(B)

1

3

EA

Lead time (weeks)

Qty

Unit of Measure

Parent Part No: F BOM Level 0

1

2

Part No. 3

4

5

6

7

0

8

(Parent)

9 F

1

EA

1

B

(F)

1

1

EA

1

D

(F)

1

1

EA

1

E

(F)

1

1

EA

C

(B)

2

2

E

(B)

1

3

2 2 Figure 5 BOMS for Items A and F

EA

Gross Requirements of Independent Demand for Service Parts Most independent demand is derived from the MPs. However, service part requirements and interplant requirements are also independent demand. Item C in the grid above is an example of service part demand, which has been forecast at 20 units per period. This forecast must be entered into the MRP system by increasing the automatically generated gross requirements for the item. MRP treats this as an increase in demand during level-by- level explosion of dependent item requirements.

Inventory Status Before the MRP can run, information on each inventory item must be input to allow for the planning of the inventory items and the calculation of net requirements. The information required, which is usually in the item master record, includes: planning factors such as lot size, lead time and safety stock inventory status information such as on-hand inventory, allocated inventory and scheduled receipts © Copyright Leading Edge Training Institute Limited

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Detailed Scheduling and Planning Net Requirements and Planned Orders Net requirements are determined by adding allocations to gross requirements and then reducing gross requirements, on a period-by-period basis, by available on-order inventory (scheduled receipts) and projected inventory. For each period: Net requirements = gross requirements + allocations - (scheduled receipts + available inv.) For item A, 10 units are required in period 4. There are no allocations, scheduled receipts or projected available inventory, so, in this case, net requirements are equal to gross requirements. When the need for an item cannot be met by projected available inventory, a new planned order is scheduled for receipt in the period where the requirement arises. In the example above, a planned order for item A is needed in period 4. Note that because the lead time for item A is 2 weeks the order must be released in period 2 to ensure it will be there when required in period 4. This planned order anticipates future needs. It is not a real released order and its priority will be automatically rescheduled by MRP logic. 2. For item A, using the data above, determine the planned order releases for each period. 1 Review Q

2

3

4

5

6

7

8

Period Planned Order release

10

3. For item F, using the data above, determine the planned order releases for each period. 1

2

3

4

5

6

7

8

Review Q

Period Planned Order release

Lower Level Gross Requirements – Level 1 In the MRP grid displayed on page 15, items A and F are the parent items for items B, C, D, and E. Much of the demand for B, C, D and E is dependent on demand for A and F. Therefore, the planned order releases for A and F convert directly into gross requirements for the dependent items. (Enter figures in the MRP grid, page 15, as you work through these calculations.) Item B Gross Requirements Items A and F each require one item B for assembly. Therefore, the combined planned order releases for A and F will give a gross requirements figure for item B. Demand for item B is wholly dependent on demand for items A and F. So gross requirements for Item B are: 1 Item A Planned Order Release

2

3 20

Item F Planned Order Release Item B Gross Requirements

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4

5 200 40

20

6

7

8

9

20 40

240 40

20 20

20

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Detailed Scheduling and Planning Item C Gross Requirements Items requires 2 Cs at level 1 for assembly. There is no level 1 requirement for C in item F. Therefore the demand for C at level 1 is dependent on item A only. Demand for item C also includes an independent demand of 10 units per period, which must be added to the gross requirements. This means the gross requirements for Item C will be as follows: 1

2

3

Item A Order Release (needs 2 of item C)

4

5

20

6

200

7

8

9

20

20

20

Independent demand for item C

20

20

20

20

20

20

Item C Gross Requirements

20

20

60

20

420 20

20

4. What is the gross requirement for item C in periods 7, 8, and 9?

Review Q

1

2

3

4

20

20

60

20

5

6

7

8

9

Period Gross Requirement

420 20

Item D Gross Requirements Item A requires 2 units of item D for assembly, while item F requires 1 item D. Therefore, the gross requirements for item D are equal to the planned order release for item F plus twice the planned order release for item A. This means the gross requirements for Item D will be as follows: 1

2

3

Item A Order Release (needs 2 of item D)

4

5

20

6

200

Item F Order Release (needs 1 of item D)

40

Item D Gross Requirements

40

7

8

9

20 40

440 40

20 40

20

Item E Gross Requirements At level 1, one item E is required for each item F. However, there are no requirements for item E at level 1 in the BOM for item A. Therefore, gross requirements at level 1 for item E will match the planned order releases for item F in each period. 5. What are the gross requirements for item E in each period? 1

2

3

4

5

6

Review Q

7

8

9

Period Gross Requirement

The following page shows the MRP grid with net requirements for items A and F and gross requirements for B, C, D, and E, calculated as far as level 1 of the BOM for items A and F. © Copyright Leading Edge Training Institute Limited

18

Item

1

Technique : Lot for lot

Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

A

Safety Stock Low Level Code Lead Time (wks)

0 2

Allocated Qty

Projected Avail.

F 0 1

Scheduled Receipts

B 1 1

Projected Avail.

Scheduled Receipts

Allocated Qty

240

Projected Avail.

D

1 1

40

40

20

20

240

40

20

20

40

440

40

40

40

420

20

60

20

40

40

340

Planned Order Receipts Planned Order Releases Gross Requirements

Order Quantity

Scheduled Receipts

300

C

Projected Avail.

20

30

Low Level Code

2

Planned Order Receipts

Lead Time (wks)

2

Planned Order Releases Gross Requirements

Order Quantity

Scheduled Receipts

E

60

20

20

Net Requirements

Technique : Lot for lot 280

20

240

Safety Stock

Safety Stock

20

Net Requirements

Technique : Lot for lot

Allocated Qty

40

200

Gross Requirements

Allocated Qty

20

20

Planned Order Releases

150

Lead Time (wks)

200

9

Net Requirements

Order Quantity

Low Level Code

200

8

Planned Order Receipts

Technique

Safety Stock

20

40

Planned Order Releases

Order Quantity

Lead Time (wks)

7

Planned Order Receipts

Gross Requirements

Low Level Code

6

Net Requirements

Technique : Lot for lot

Safety Stock

20

Planned Order Releases

Scheduled Receipts

Allocated Qty

5

Planned Order Receipts

Order Quantity

Lead Time (wks)

4

Net Requirements

Gross Requirements

Low Level Code

3

Projected Avail.

Technique : Lot for lot

Safety Stock

2

Unit 2

Detailed Scheduling and Planning

Projected Avail.

20

240

Net Requirements

Low Level Code

2

Planned Order Receipts

Lead Time (wks)

1

Planned Order Releases

Table 2 MRP Grid with Level 0 net requirements and Level 1 gross requirements

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Unit 2

Detailed Scheduling and Planning Level 1 Gross Requirements In the MRP grid displayed on page 15, items A and F are the parent items for items B, C, D, and E. Much of the demand for B, C, D and E is dependent on demand for A and F. Therefore, the planned order releases for A and F convert directly into gross requirements for the dependent items.

Figure 6 Graphical BOM for items A and F

However, some of the items at level 1 also recur further down the BOM at level 2. Therefore, while the gross requirements for B and D are accurate at this stage, further calculations must be done to achieve the correct calculations for C and E. This is because the production of item B will trigger further requirement for items C and E.

Determining Level 1 Net Requirements and Planned Orders When gross requirements for level 1 items have been posted, the net requirements for those items with a low level code of 1 can be calculated. As previously explained, net requirements are determined by adding allocations to gross requirements and then reducing gross requirements, on a period-by-period basis, by ava ilable on-order inventory (scheduled receipts) and projected inventory. For each period: Net requirements = gross requirements + allocations - (scheduled receipts + available inv.) Note that there is no point in netting the requirements for items C and E at this point, as we have not reached the low level code for those items yet. At this stage (level 1), net requirements can be calculated for items B and D. Net requirements can only be calculated for those items whose low level code has been reached. Where there is no net requirement, that is, available inventory and scheduled receipts combined are greater than the total gross requirements and allocations, the net requirements cell is left empty. Item B Net Requirements There are 200 units on hand for item B. Usually, when using a lot- for- lot ordering policy, inventory on- hand is minimal, unless due to a production overrun, higher than expected yield, customer order cancellation, or other unexpected change in circumstances. Using the formula above, the net requirements for item B in each period are set out below: Period

1

2

3

Gross Requirements

4

20

5

6

7

8

240

40

20

20

60

40

20

20

9

Allocations (add to gross) Scheduled receipts (subtract) Available inventory (subtract)

200

200

180

Net Requirements © Copyright Leading Edge Training Institute Limited

180

20

Unit 2

Detailed Scheduling and Planning Item B Planned Orders (lot for lot) Now that the net requirements for item B are in place, it is possible to set the planned orders. As a lot- for- lot ordering policy is in place for item B, an order equal to the net requirement for each period must be scheduled to arrive in that period. As item B has a lead tie of 1 week, this means that an order for each net requirement must be released a week before it is needed. For example, the net requirement for 60 units in period 5 will be satisfied for an order placed in period 4. The following table sets out the planned orders for item B. Period

1

2

3

5

6

7

8

240

40

20

20

Net Requirements

60

40

20

20

Planned Order Receipt

60

40

20

20

40

20

20

Gross Requirements

4

20

9

Allocations (add to gross) Scheduled receipts (subtract) Available inventory (subtract)

200

200

180

Planned Order Release

180

60

Item D Net Requirements Each item A requires 2 of item D and each item F requires one item D. Item D has inventory on-hand of 340 units. However, 240 units of this have been allocated to another order. They are still in the stock room but have been promised to another work order and are not available to use here. When calculating net requirements, the allocated quantity is treated like a gross requirement in the first period. There is also a scheduled receipt from a previous order due in period 1 of 320 units, which must be factored in. The net requirement for period 1 is therefore gross requirements added to allocations less the sum of scheduled receipts and available inventory. In this case: 0 + 240 – 100 – 340 = 200 As the result is a negative figure there is no net requirement in period 1. However, this results in an available inventory of 200 for the next period. If there were no inventory on- hand, there would have been a net requirement of 140 units. Using the formula above, the net requirements for item D in each period are set out below: Period

1

2

Gross Requirements Allocations (add to gross)

4

40 240

Scheduled receipts (subtract) Available inventory (subtract)

3

5

6

7

8

440

40

40

20

380

40

40

20

9

240 100

340

340

200

Net Requirements

© Copyright Leading Edge Training Institute Limited

160

160

21

Unit 2

Detailed Scheduling and Planning Item D Planned Orders (Specified lot size ) Unlike item B, item D has been allocated a lot size of 150. Orders for item D can only occur in multiples of 150. Where the net requirements trigger an order, but are less than the specified lot size, you increase the inventory on- hand by the amount that remains once the net requirement has been taken out of the order. Notice that the arrival of a planned order in period 6 (see below) satisfies net requirements but also results in 70 units of inventory on-hand, which is enough to cover requirements for period 6 and part of period 7. A further order receipt in period 7 will cover requirements for periods 7 and 8 As item D has a lead time of 1 week, each planned order must be released a week before it is needed. Period

1

2

3

5

6

7

8

440

40

40

20

70

30

140

120

Net Requirements

380

0

10

0

Planned Order Receipt

450

Gross Requirements

4

40

Allocations (add to gross)

240

240

Scheduled receipts (subtract) Available inventory (subtract)

9

100 340

340

200

160

Planned Order Release

160

150

450

150

6. If the lot size for item D were reduced to 100 and all other parameters remained the same , determine the planned order releases required to fulfill gross requirements. Review Q

1

2

3

4

5

6

7

8

9

Period Planned order release

Level 2 Gross Requirements At this point all gross requirements, net requirements and planned order receipts have been calculated as far as possible at level 1. Planned order releases for item B in periods 4, 5, 6, and 7 lead to gross requirements for parts C and E at level 2. As 2 of item C and 1 of item E are required for every item B, the following gross requirements for C and E must be added to those already calculated at level 1. 1

2

3

4

5

6

7

Item B (needs 2 of C and 1 E)

60

40

20

20

Item C Gross Requirements

120 80

40

40

Item E Gross Requirements

60

20

20

40

8

9

The following table shows the calculations to date and posts gross requirements for parts C and E generated from the planned order releases for item B at level 1.

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Item

1

Technique : Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

A

Safety Stock Low Level Lead Time

0 2

Allocated Qty

Projected Avail.

F 0 1

Scheduled Receipts

Allocated Qty

Projected Avail.

B 1 1

Technique

20

1 1

200

200

200

20

20

20

20

40

20

20

440

40

40

40

70

30

140

100

Planned Order Releases

60

Gross Requirements

40 100

340

340

200

160

160

Net Requirements

380

10

Planned Order Receipts

450

150

Order Quantity

Scheduled Receipts

450

Projected Avail.

20

20

180

150

500

60

100

60

20

60

80

60

20

20

20

240

Safety Stock

30

Low Level

2

Planned Order Receipts

Lead Time

2

Planned Order Releases

Net Requirements

Technique : Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

E

40

40

Gross Requirements

280

240

60

Technique : Lot for

C

20

180

Planned Order Releases

300

40

Planned Order Receipts

Projected Avail.

D

20

40

20

240

Safety Stock

40

20

Allocated Qty

Allocated Qty

20

40

Scheduled Receipts

Allocated Qty

200

9 20

60

150

Lead Time

200

8

Net Requirements

Order Quantity

Low Level

20

40

Planned Order Releases

Order Quantity

Safety Stock

7

Planned Order Receipts

Gross Requirements

Lead Time

6

Net Requirements

Technique : Lot for

Low Level

20

Planned Order Releases

Scheduled Receipts

Safety Stock

5

Planned Order Receipts

Order Quantity

Lead Time

4

Net Requirements

Gross Requirements

Low Level

3

Projected Avail.

Technique : Lot for

Safety Stock

2

Unit 2

Detailed Scheduling and Planning

Projected Avail.

240

Net Requirements

Low Level

2

Planned Order Receipts

Lead Time

1

Planned Order Releases

Table 3 MRP: Gross requirements, net requirements and planned orders for level 1

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Unit 2

Detailed Scheduling and Planning Item C Net Requirements At level 2 all items with a low level code of 2 may be netted. In this example, this includes items C and E. Item C has an order quantity or lot size of 300. In addition, it has a safety stock level of 30 units. These must be taken into account when calculating the net requirements for each period. Period

1

2

Gross Requirements for C

20

20

Available inventory (subtract)

240

220

3

4

180

500

5 60

6 100

7

8

9

60

20

20

40

Net Requirements

490

60

100

60

20

20

Item E Net Requirements Item E has an order quantity or lot size of 280 and on- hand inventory of 240. These must be taken into account when calculating the net requirements for each period. As can be seen below, the inventory on-hand covers all requirements for E. Period

1

2

3

Gross Requirements for E Available inventory (subtract)

240

240

240

4

5

6

7

8

60

80

60

20

20

180

100

40

9

20

Net Requirements

MRP Exercise Using the same bill of material for items A and F as the previous example (see page 16), complete MRP calculations for the gross requirements detailed on Table 4, page 15. The gross requirements for items A and F, the independent service part demand for item C, and inventory status information for all items have been entered for you. Follow these steps: 1. Calculate the net requirements for level 0 items A and F (net requirements = gross requirements + allocations – scheduled receipts – projected available inventory + safety stock) 2. Schedule planned order receipts for every positive net requirement, and offset order release by the lead time 3. Post Item A and F planned order releases as gross requirements to items B, C, D, and E. using the BOM information to calculate the quantities. (For example, every A requires 2 Ds) 4. Calculate the net requirements and planned order releases for item B and post these planned order releases as gross requirements to be added to existing gross requirements for C and E. 5. Calculate net requirements for items D, C and E and then determine planned order releases

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Item

1

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

A

Safety Stock

Planned Order Receipts

Lead Time

2

Planned Order Releases

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

Safety Stock

Planned Order Receipts

Lead Time

1

Planned Order Releases

120

8

9

60

80

20

40

40

20

20

30

40

40

20

20

Scheduled Receipts

B

Safety Stock

Projected Avail.

200

Net Requirements

Low Level

1

Planned Order Receipts

Lead Time

2

Planned Order Releases

Technique

Gross Requirements

Order Quantity

320

Allocated Qty

40

Safety Stock

Lead Time

7

Gross Requirements

Allocated Qty

Low Level

6

Net Requirements

0

Order Quantity

5

Projected Avail.

Low Level

Technique

4

Net Requirements

0

F

3

Projected Avail.

Low Level

Allocated Qty

2

Unit 2

Detailed Scheduling and Planning

Scheduled Receipts

D

1 1

Projected Avail.

340

Net Requirements Planned Order Receipts Planned Order Releases

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

300

Allocated Qty

C

Projected Avail.

30

30

Low Level

2

Planned Order Receipts

Lead Time

2

Planned Order Releases Gross Requirements

Order Quantity

Scheduled Receipts

E

Safety Stock

30

10

Net Requirements

Technique: Lot for

Allocated Qty

20

240

Safety Stock

280

30

Projected Avail.

240

Net Requirements

Low Level

2

Planned Order Receipts

Lead Time

1

Planned Order Releases

Table 4 MRP Exercise

© Copyright Leading Edge Training Institute Limited

25

Item

1

5

6

7

8

9

60

80

20

40

40

Net Requirements

60

80

20

40

40

60

80

20

40

40

20

40

40

20

20

30

20

Net Requirements

20

20

30

20

20

20

30

20

20

20

30

60

100

40

70

40

20

140

40

50

10

110

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

Allocated Qty

A

Safety Stock 0

Planned Order Receipts

Lead Time

2

Planned Order Releases

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

F

Safety Stock 0

Planned Order Receipts

Lead Time

1

Planned Order Releases

Order Quantity Allocated Qty

Projected Avail.

200

120

Planned Order Receipts

Lead Time

2

Planned Order Releases

120 120

Gross Requirements

Order Quantity

320

Scheduled Receipts

Allocated Qty

40

Projected Avail.

Lead Time

200

70

1

Technique

200

Net Requirements

Low Level

Safety Stock

D

1 1

340

20

300

300

180

80

20

260

150

70

50

50

320

Order Quantity

Scheduled Receipts

C

110

Planned Order Receipts

Gross Requirements

Projected Avail.

240

120

60

60

320

Planned Order Releases

300

180

240

30

150

420

80

360

100

30

10

210

60

240

160

100

300

270

260

Net Requirements

390

230

30

2

Planned Order Receipts

600

300

300

2

Planned Order Releases

Safety Stock

30

Low Level Lead Time

Technique: Lot for

Gross Requirements

Order Quantity

Scheduled Receipts

280

Allocated Qty

E

Safety Stock

Projected Avail.

240

600

240

240

240

300

300

380

20

390

140

120

10

20

10

270

Net Requirements

140

270

10

280

280

280

Low Level

2

Planned Order Receipts

Lead Time

1

Planned Order Releases

110

120

Net Requirements

Technique: Lot for

Allocated Qty

80

Scheduled Receipts

B

Safety Stock

Low Level

60

Gross Requirements 120

4

Projected Avail.

Low Level

Technique

3

Projected Avail.

Low Level

Allocated Qty

2

Unit 2

Detailed Scheduling and Planning

280

280

270

280

Table 5 MRP Results: Gross requirements, net requirements and planned orders for all items

© Copyright Leading Edge Training Institute Limited

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Unit 2

Detailed Scheduling and Planning

Summary This lesson looked in detail at the logical processes involved in material requirements planning (MRP). The system inputs and the processing required to calculate each MRP output were explained. You should be able to: Identify components of an MRP spreadsheet Detail initial requirements for the planning process Perform the netting process for a given MRP record Explode a set of MRP records to produce a complete material plan Explain the characteristics and workings of a rolling schedule Describe the necessity for low- level codes Explain how low- level codes are used Identify alternative techniques for handling various planning factors

Further Reading Introduction to Materials Management, JR Tony Arnold, CFPIM, CIRM and Stephen Chapman CFPIM 5th edition, 2004, Prentice Hall APICS Dictionary 10th edition, 2002 Manufacturing Planning and Control Systems, Vollmann, T.E.; W.L. Berry; and D.C. Whybark 5th edition, 2004, McGraw-Hill Production & Inventory Management, Fogarty, Donald W. CFPIM; Blackstone, John H. JR. CFPIM; and Hoffmann, Thomas R. CFPIM 2nd edition, 1991, South-Western Publishing Co., Cincinnati, Ohio

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Unit 2

Detailed Scheduling and Planning Review The following questions are designed to test your recall of the material covered in lesson 2. The answers are available in the appendix of this workbook. 7. Which items are NOT included in the MRP grid? A. Order quantity, safety stock, allocations, gross requirements, net requirement s B. Forecast demand, actual demand, cumulative items available to promise C. Low level codes, lead times D. Scheduled receipts, planned order releases and receipts, on- hand inventory balance 8. Which of the following are requirements for MRP? A. Inventory item identification and storage location B. MPS and BOM information C. Production Plan BOM information D. RCCP and MRO lead times 9. Which is the most accurate definition of pegging? A. A method of locking a planned order so that it will not be changed automatically by MRP logic B. A way of identifying the lowest BOM level an item appears on, to aid MRP netting C. A method of tracing item requirements through the BOM structure to determine the parent items that generated the demand D. The computation of the total requirements for an item 10. Why are low level codes used? A. To identify the length of the MRP planning horizon B. To identify the total requirement for an item C. To identify the parent items that generated the demand for a low- level item D. To set the level at which all requirements for an item should be calculated in MRP

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28

Unit 2

Detailed Scheduling and Planning What’s Next? Lesson 4 looked in detail at MRP logic. At this point you have completed 4 of the 9 lessons in Unit 2. You should review your work before progressing to the next lesson which is: Detailed Scheduling and Planning – Lesson 5 Using Outputs of MRP

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29

Unit 2

Detailed Scheduling and Planning Appendix

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30

Unit 2

Detailed Scheduling and Planning Answers to Review Questions 1. C MRP is required to plan and control inventories, work orders and purchase orders and to provide accurate loading information for CRP. The scheduling of individual operations is completed at a lower level of planning. 2. Planned order releases for item A are required in periods 3, 5, and 7 to fulfill requirements in periods 5, 7, and 9 taking into account the 2 week lead time.

1

2

3

4

20

5

6

200

7

8

9

Period Planned Order release

20

3. Planned order releases for item F are required in periods 5, 6 and 8 to fulfill requirements in periods 6, 7, and 9, accounting for a one week lead time

1

2

3

4

5

6

7

8

9

Period Planned Order release

4. Item A requires 2 item Cs at level 1. Item F does not require any item Cs at level 1. Note that orders for item B will increase gross requirements for its components, items C and E. However, this is not calculated at this point.

1

2

3

4

5

6

7

8

9

Period

20

20

60

20

420

20

60

20

20

Gross Requirements

5. At level 1, each item F requires an item E. There are no level 1 requirements for item E in the BOM for A. Note that gross requirements for item E will change when level 2 requirements are calculated, as item E is a component of item B.

1

2

3 20

4

5

6

7

8

280

80

20

40

© Copyright Leading Edge Training Institute Limited

9

Period Gross Requirements

31

Unit 2

Detailed Scheduling and Planning 6. If the lot size for D is 100, an order of 400 would be required to cover demand in period 4. A further order of 100 would be required for demand in period 5. The rest of this order would cover demand in periods 6, 7 and 8.

1

2

3

4

5

6

400 100

7

8

9

Period Planned Order release

7. B Cumulative available to promise, forecast demand and actual demand are all elements of the MPS grid which feeds into MRP. MRP grids show the order quantities, safety stock quantities, allocations, lead time, gross requirements, net requirements, scheduled receipts, planned order releases and receipts, and projected on- hand inventory. 8. B MRP requirements include the following inputs: MPS, BOM for each product, inventory status, lead times, scrap, lot sizes, and safety stock levels. 9. C Pegging is used to identify the source of item requirements. It traces the requirements for an item up to the originating requirement for the parent product. It is useful for identifying the effects of late orders on finished goods inventory. This helps the planner prioritize orders. 10. D The low- level code for an item is the lowest level at which it is used in any BOM. MRP calculations for an item will not be netted until all gross requirements have been calculated down to that level.

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Unit 2

Detailed Scheduling and Planning Glossary Term

Definition

bill of material (BOM)

A listing of all the subassemblies, intermediates, parts, and raw materials needed for a parent assembly, showing the required quantity of each. It is used with the MPS to determine items that must be ordered. Also called formula or recipe.

dependent demand

Demand that is directly related to or derived from the bill of material structure for another item or end product. Dependent demand should be calculated rather than forecast. Some items may have both dependent and independent demand at the same time.

independent demand

Demand for an item that is unrelated to the demand for other items. Examples include finished goods and service part requirements.

lead time

Lead time is the span of time required to perform a process.

master production schedule (MPS)

The anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this schedule and it drives material requirements planning. It specifies configurations, quantities and dates for production.

seasonality

A repetitive pattern of demand from year to year or month to month (or other time period) showing much higher demand in some periods than in others.

work order

An order to the machine shop for tool manufacture or equipment maintenance or an authorization to start work on an activity or product.

Material A set of methods that calculate material requirements by exploding the bill Requirements of material data against the master production schedule requirements, taking Planning (MRP) into account inventory on hand and other inventory information. It recommends replenishment orders and dates for material and can suggest reschedule open orders when due dates and need dates are not in phase. Time phased MRP begins with the requirements of the MPS and determines the quantity of all materials requires to produce those items and the date that those materials will be required. Inventory

Stocks or items used to support production, activities that support production, and customer service. Raw materials and work- in-process inventories support production, MRO inventories are used for supporting activities, and finished goods and spare parts inventories support customer demand.

Planning horizon The amount of time a plan, such as the master schedule, extends into the future. This is usually greater than the cumulative lead time and allows for © Copyright Leading Edge Training Institute Limited

33

lot sizing of low level components. It may also allow for capacity changes at key work centers or key suppliers. Time bucket

A single cell in a spreadsheet- like grid, which is equivalent to length of time, for example, a day, or more usually a week. The cell contains all the relevant data for the specified time period, such as the total net requirement for an item in a given week.

Firm planned order (FPO)

A planned order that is frozen in quantity and time and cannot be automatically changed by the computer. FPOs are an aid for planners working with MRP to respond to material and capacity issues by firming up selected planned orders. Firm planned orders are often used to state the master production schedule.

Pegging

In MRP and MPS, pegging is the ability to identify the sources of gross requirements and allocations for a given item. It is also called ‘where- used’ information

Low-level code

A number attached to an item identifying the lowest level of any bill of material at which that item appears. For example, if item F101 is required in the production of G11 and G11 is required to make H28, then H28 is the parent of G11 and has a low- level code of 0. G11 has a low level code of 1 and, as it is the parent of F101, F101 occurs at level 2.

Gross requirements

The total of independent and dependent demand for a component before the netting of on-hand inventory and scheduled receipts.

Net requirements In MRP, net requirements are calculated by subtracting the level of inventory on hand and scheduled receipts from the total achieved by adding together gross requirements, allocations and safety stock. Net requirements are converted into planned orders by applying lot sizing and lead time parameters. Scheduled receipts

Open orders that have been assigned a due date

Projected An estimate of inventory balance in the future. It is a running sum of onavailable balance hand inventory minus requirements plus scheduled receipts and planned order receipts. Planned order receipts

The quantity planned to be received at a particular time as a result of a planned order release. Planned order receipts are not scheduled receipts as they have not been released.

Planned order release

The date at which a planned order will be released. This is calculated by MRP by processing net requirements against lot size and lead time parameters. Planned orders are created by the computer and exist only in the computer. They may be changed or deleted during subsequent MRP processing or if circumstances change. Planned orders at one level become the gross requirements for items at the next level.

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Unit 2

Detailed Scheduling and Planning

Order quantity

Order quantity or lot size is the amount of an item that is ordered or issued as a standard quantity to the production process

Lot for lot

A lot-sizing technique that generates planned orders equal in quantity to the net requirement for each period.

Allocated quantity

The amount of an item that has been assigned to a specific order but has not yet been released from the stockroom to the production floor.

Safety stock

An amount of stock that is held in inventory to protect against fluctuations of demand or supply. In master production scheduling, it is the additional inventory and capacity planned as protection against forecast errors.

Lead time

The amount of time needed to perform a process. It is also considered to be the amount of time between recognition of the need for an item and the receipt of an order for that item. Lead time can include order preparation time, queue time, processing time, move time and receiving and inspection time.

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35

Unit 2

Detailed Scheduling and Planning