Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18MRPMRPQuestion: how do firms actually organize things to turn materials into finished products?MRP (Material Requirements Planning)- determines number of parts, components and materials to produce each end item- determines when each component, part and material is needed to finish the end items on scheduleMaterial Requirements PlanningManufacturing Resource Planning (MRP II)Enterprise Resource PlanningProducts are combinations of parts…Example: BicycleHandle bars (1)Metal Frame (1)Wheels (2)MRP Systems: Materials Requirements Planning•Bill of Materials (product structure tree, schematic, product flow diagram)•Relationships with suppliers (we can manufacture some of the parts, others we can get from suppliers)•Master Production Schedule is the key inputCustomerAssemblyAssemblyProductionProductionProductionUnits are PUSHED forward according to the plan!Summary: How does MRP work?Material Requirement PlanningLet’s look at an example BOM...AB(2) C(1)D(3) E(3) D(1)Question: How many D’s we need in order to produce 50 A’s?How do we manage order release?Parts-Product Process Lead TimeA 10B 15C 10D 15E 10We need information on delivery times!Let’s look at an example BOM...AB(2) C(1)D(3) E(3) D(1)Question: When do we start producing/ordering each part?(10)(15) (10)(10)(15)(15)Let’s assume that we need 50 units of A…Parts-ProductsABCDEDelivery date for final product5 daysLet’s assume that we need 50 units of A…Parts-ProductsABCDEStart assembly for 50 units of ALet’s assume that we need 50 units of A…Parts-ProductsABCDEStart assembly for 100 units of BLet’s assume that we need 50 units of A…Parts-ProductsABCDEStart assembly for 50 units of CLet’s assume that we need 50 units of A…Parts-ProductsABCDEOrder 300 units of D for B’s processLet’s assume that we need 50 units of A…Parts-ProductsABCDEOrder 50 units of D for C’s assemblyLet’s assume that we need 50 units of A…Parts-ProductsABCDEOrder 50 units of E for C’s assemblyLot Sizing in MRP Systems•Lot-for-lot (L4L):Produce to cover next period•EOQ:Apply the EOQ approximation for yearly demand•Least Unit Cost:Minimize total cost (order + carry) per unitThese are all approximate methods, none is guaranteed to be optimal. We can apply all of them and find the least-cost one to implement.ExampleCost per item: $10Order/setup cost: $47Inventory carrying cost/month 2%Starting inventory: 50Production lead time 1 monthMonthly requirements1 2 3 4 5 6100 50 80 120 70 80For the solution, see file