© Hajime Mizuyama Production & Operations Management #1 @AGU Lec.7: MRP (1) • Independent and dependent demand • Bill of materials (BOM) and outline of MRP • Priority planning and capacity planning

© Hajime Mizuyama Course Schedule #1 Date Contents Outline of production management (1): How to conceptualize production systems Outline of production management (2): Framework of production planning and control Inventory control and management (1): Economic order quantity (EOQ) and the role of safety stock Inventory control and management (2): Conventional inventory control models Production planning and linear programming MRP (1): Bill of materials (BOM), priority planning, capacity planning, etc. MRP (2): Lot sizing and dynamic order quantity (DOQ)

© Hajime Mizuyama • Most products are composed of many (or at least several) components (parts or units). • To obtain the products, we first need to produce those components, and then assemble them up to the products. • Further, each component may be produced through several operations to be carried out on different machines. • Thus, not only the production plan for (assembling) the final products, but also that for (producing) each component will be necessary. Hierarchical production planning Necessity of Hierarchical Planning

© Hajime Mizuyama Items of independent demand Final products, service parts, etc., demand on which is determined exogenously, for example, by the market Items of dependent demand Parts, materials, tools, etc., demand on which is derived endogenously, for example, from that on higher hierarchy items The production plan for the latter can be derived from that of the former. Independent and Dependent Demand

© Hajime Mizuyama Time phasing Discretize time axis by dividing continuous time into segments of an appropriate length, for example, a week, a day, etc. Time bucket Each time segment generated by time phasing Lead-times (including appropriate margin) are rounded up in this units. Time Phasing Time

© Hajime Mizuyama Outline of MRP Master production schedule (MPS) Priority planning Capacity planning Capacity control Priority control Overcapacity? no Feed-back yes Modification

© Hajime Mizuyama How much of what materials are needed where and when? Production capacity (humans and machines) Planning Priority planning Capacity planning Control Priority control Capacity control Functions of MRP System MRP I (Material requirements planning) ⇒ MRP II (Manufacturing resource planning)

© Hajime Mizuyama Master production schedule (MPS) Gross requirement for each item per period Net requirement for each item per period Completion schedule for each item Order release schedule for each item Bill of materials (BOM) Levels of inventory and backorder Lot sizing rules Production lead-times Priority Planning Lower hierarchy items

© Hajime Mizuyama Capacity Planning Order release schedule for each item Work center schedule for each item Overall workload at each work center Overcapacity? Execution Processing route and lead-time of each item yes no Priority planning Load for each item at each work center Standard load (person-hours, machine-hours) at each work center

© Hajime Mizuyama Illustrative Example: Priority Planning Initial stock Minimum lot size Lead -time P 20 1 1 period U 30 1 2 periods A 50 30 1 period B 30 30 2 periods Product P Unit U Part A Part A Part B Bill of materials (BOM） (1) (1) (2) (2) ← How many items are required? Order volume must be a multiple of this value. Period 1 2 3 4 5 6 7 Demand ― ― 15 30 15 10 20 Demand quantities for P • Summarized BOM • Structured BOM

© Hajime Mizuyama Production System Structure and Initial Inventory Levels Assemble up P Assemble up U Process B Process A Inventory of P Inventory of U Inventory of B Inventory of A 20 30 50 30

© Hajime Mizuyama Inventory Level of Product P #1 Time 10 20 30 40 1 2 3 4 5 6 7 Inventory level Period 1 2 3 4 5 6 7 Demand ― ― 15 30 15 10 20

© Hajime Mizuyama Inventory Level of Product P #2 Time 10 20 30 40 1 2 3 4 5 6 7 Inventory level Order 25 at this point Period 1 2 3 4 5 6 7 Demand ― ― 15 30 15 10 20

© Hajime Mizuyama Inventory Level of Product P #3 Time 10 20 30 40 1 2 3 4 5 6 7 Inventory level Period 1 2 3 4 5 6 7 Demand ― ― 15 30 15 10 20

© Hajime Mizuyama Production Order for Product P Week 1 2 3 4 5 6 7 Gross requirement ― ― 15 30 15 10 20 Inventory level 20 20 5 -25 -15 -10 -20 Net requirement ― ― ― 25 15 10 20 Order quantity ― ― 25 15 10 20 ― Priority planning for product P

© Hajime Mizuyama Inventory Level of Product U Time 10 20 30 40 1 2 3 4 5 6 7 Inventory level Period 1 2 3 4 5 6 7 Demand ― ― 25 15 10 20 ―

© Hajime Mizuyama Production Order for Unit U Week 1 2 3 4 5 6 7 Gross requirement ― ― 25 15 10 20 ― Inventory level 30 30 5 -10 -10 -20 ― Net requirement ― ― ― 10 10 20 ― Order quantity ― 10 10 20 ― ― ― Priority planning for unit U

© Hajime Mizuyama Inventory Level of Part B Time 10 20 30 40 1 2 3 4 5 6 7 Inventory level Period 1 2 3 4 5 6 7 Demand ― 20 20 40 ― ― ―

© Hajime Mizuyama Production Order for Part B Week 1 2 3 4 5 6 7 Gross requirement ― 20 20 40 ― ― ― Inventory level 30 10 -10 -20 ― ― ― Net requirement ― ― 10 20 ― ― ― Order quantity 30 30 ― ― ― ― ― Priority planning for part B

© Hajime Mizuyama Inventory Level of Product U Time 20 40 60 80 1 2 3 4 5 6 7 Inventory level Period 1 2 3 4 5 6 7 Demand ― 10 60 50 20 40 ―

© Hajime Mizuyama Production Order for Part A Priority planning for part A Week 1 2 3 4 5 6 7 Demand from P ― ― 50 30 20 40 ― Demand from U ― 10 10 20 ― ― ― Gross requirement ― 10 60 50 20 40 ― Inventory level 50 40 -20 -40 0 -40 ― Net requirement ― ― 20 40 0 40 ― Order quantity ― 30 60 0 60 ― ―