MATERIAL REQUIREMENTS PLANNING - MIT

154 Pages·2010·5.38 MB·English

MATERIAL REQUIREMENTS PLANNING
A STUDY
by
Ajit Sur.ajmal Kanodl a
B. TECH., Indian Institute of Technology, Bombay
(1973)
I',
SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE
4
JEGREE OF MASTER OF
;
J$~
4
SCIENCE
4,
F
4
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
June,1976
Signature of Author.*.....** *.**** . 0* .*0 0 0 . . 0.0000 0
Alfred P. Sloan School of Management, May 7, J976
Certified by.........................
Thesis Supervisor
Accepted by..................................................
Chairman, Departmental Committee on Graduate Students
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MATERIAL REQUIREMENTS PLANNING
A STUDY
by
Alit Suralmal Kanodia
"Submitted to the Alfred P. Sloan School of Management on
May 7th, 1976 in partial fulfillment of the requirements for
the aegree of Master of Science."
Inventory management techniques have gained in importance in
the past few years because of the cash crunch being faced by
most companies. Material Requirements Planning (MRP) is
gaining rapidly in popularity, specially after the APICS
(American Production and Inventory Control Society) MRP
Crusade. The technique is being presented as if it were the
cure for all ills. The purpose of this thesis is to identify
a number of issues that are relevant to MRP and, wherever
possible, to propose an approach. Another purpose is to
stuay how firms tackle these issues and to present real-life
implementation characteristics. With this in mind, seven
firms were Interviewed personnaly. The study concludes that
the issues are largely unresolved in Industry and whatever
benefits are accruing are mostly due only to better timing
information generated by the explosion process rather than
any other formal procedures. It follows that further
benefits are achievable if the issues are tackled in a
scientific manner.
Thesis Supervisor and Chairman: Arnoldo C. lax
Titlet Associate Professor of
Management Science
Thesis Supervisors Stuart Madnick
Title: Assistant Professor of
Management Science
A CKiNIOWL EDGE MEN TS
I would like to thank Professors Arnoldo Hax and Stuart
Madnick for making this research possible and for their help
and guidance.
Thanks are cue to Paul Bacigalupo (IBM), Romeyn
Everdell (Rath & Strong), Harlan Meal (Arthur 0. Little),
Jeffrey Miller (Harvard Business School), Harvey Shycon
(Harvey Shycon and Associates) and Linda Sprague (University
of New Hampshire) for the excellent discussions they made
possible by being so generous with their time.
Special thanks are due to all the people with whom I
held discussions in the firms I visited for bearing with me
while I subject them to numerous questions and for the
information they provided. They must, unfortunately, remain
anonymous.
TABLE OF CONTENTS
List of Figures ... ,,,,..,...,.,...,,...... 5
1. What is MR ? . . . . . . . . . . . . . . . . 6
2. The Master Production Dchedule .............. 16
3. Frozen Production Schedule ................ 31
4. Safety Stock .............. ............. . 36
5. Lead Time ........................ ..... 58
6 . Lot S iz ing .. . . . . . . . . . . . . . . . 64
7. vIRP Everything ............................ 76
8. Industry Survey ................... ... 84
9. Observations and Conclusions .............. 119
Bibliography .............. . . . ... . . 123
Appe nd ix 1 .. . .. .. . ........................ 0 4 a 13 0
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LIST OF FIG(JRS
Fig. 1 IRP explosion illustrated ........... ,... 8
Fig. 2 MvIRP schematic representation ........... , 11
Fig. 3 COPICS production related manufacturing
applications . . . . . . . . . ., . .. 12
Fig. 4 Inventory management functions ......... 14
Fig. 5 Product - time - work centre matrix .... 19
Fig. 6 Work centre load profile ............... 21
Fig. 7 Time load profile .,............ ........ 22
Fig. 8 Product load profile .......... 231
Fig. 9 Feasibility managemrent flowchart .... 27
Fig. 10 Time-phased requirements plan .......... 32
Fig. 11 A frozen production schedule ........... 38
Fig. 12 Changes within frozen production schedule 40
Fig. 13 Least total cost ...... ............ . 66
Fig. 14 Least total cost at two levels ......... 67
Fig. -15 Lot-for-lot at two levels . 69
Fig. 16 Status of item A ....................... 72
Fig. 17 A coverage problem for item A .......... 73
Fig. 18 Coverage problem resolved .............. 75
Fig. 19 MIRP everything decision table .... ..... 80
Fig. 20 Product leal time relationship ......... 81
Fig. 21 Modified product lead time relationship . 83
Fig. 22 MRP survey system characteristics ...... 117
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CHAPTER 1
WHAT IS MRP?
The following discussion assumes reader familiarity
with MRP. A gooa description of MRP can be found in the book
by Orlicky<45>. A glossary of terms can be found in COPICS
(Communications Oriented Production Information and Control
System) publication by I8M<13>.
MRP has been defined in the following terms: "A
Material Requirements Planning (MRP) system, narrowly
defined, consists of a set of logically related procedures,
decision rules ano records (alternatively, records may be
viewed as inputs to the system) designed to translate a
Master Production Schedule into time-phased net requirements
and the planned coverage of such requirements, for each
component inventory item needed to implement this schedule."
(Orlicky<45>).
MRP is basical ly an Information system. Looking at it
from another point of view, it is a simulation technique by
which we can simulate shop floor activity given a master
production schedule. The logic and mathematics of MRP is
essentially very simple - given the gross requirements for
an item we net it out against the on-hand quantity to arrive
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at the net requirements for the item, which is then offset
by the lead time for the item to generate the timing
information of when manufacture of this item should be
started and hence when its lower level item should be
available. When this is , done through the entire product
structure and for the entire master schedule we have a
simulation of what tne activities of each work centre should
be at what time and when purchased items should be ordered
and in what quantities. A single level computation can be
schematically laid out as in Figure 1. Lot for lot
lot-sizing has bean assumed.
A few points that need to be noted are%
1. The explosion of the product structure described above
is properly applicable to dependent demand Items. The
demand for an item is said to be Independent if its
demand is not a function of the demand for another
item. The demand for an item is said to be dependent
when its demand Is a function of the demand for another
inventory item.
2. The process has to start with a schedule that specifies
how much we will manufacture in each period, for the
end Item. This document is the Master Production
Schedule.
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Item A
Lead time= 2 periods
Periods 1 2 3 4 5 6 7
Gross requirements 10 20 10 5 30 20
Scheduled receipts
On hand 30 20 0 -10 -15 -45 -65
Net requirements 10 5 30 20
Planned-order releases 10 5 30 20
Creates Gross Requirements
at the next level
Figure 1 MRP explosion illustrated.
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3. To properly carry out the explosion process we have to
know the stages the items go through. We also have to
know information such as - for each unit of item A we
need two units of item 8 and it takes one period to
build it. Sucn information is maintained in the
'Procuct Structure* or *Bill of Materials*.
4. To determine the net requirements for an item we need to
know the on-hana quantity and scheduled receipts for
that Item. This information is maintained in the 'Parts
Master* or "Inventory Records'.
5. Once a 'Planned Order Release' Is released it becomes an
*open order' ano gets recorded in the 'Scheduled
Receipts' row.
6. An inventory item can be a component of a number of
end-products, in which case the requirements for the
item are oerived from the master schedules of all the
end-products of which it is a component.
7. Using lot-sizing procedures, a number of net
requirements may be combined into a single order In
order to minimize inventory costs. Thus net
requirements are an input into the decision making
process.
8. An item may be a component at different levels in the
structure of different or even the same item. To get
around the problem this creates for efficient lotsizing
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ana explosion, a technique known as low-level coding is
used whereby the lowest level at which an item occurs
in the structure of any end item is identified. The
item is processed only when that lowest level is
reached in the level by level orocessing. (See
Orlicky<45> page 63 for a aetailed explanation.)
A schematic representation of an MRP system is given in
Figure 2.
MRP in Perspective
A large number of functions have to be performed to
support production related manufacturing application. The
application areas that have been identified by COPICS are
shown in Figure 3 which is a reproduction of F1gure 2 from
COPICS, Management Overview<13>. (COPICS is a set of eight
manuals "that outline the concepts of an integrated
computer-based manufacturing control system.") Of the 12
areas identified, Inventory Management happens to be one of
them. It is in this area that MRP is applicable. Hence, MRP
is only applicable in one of the twelve areas related to
proauction - it is not a panacea for all productior
problems. Any claim that the Inventory Management subsystem
is the most important subsystem is akin to saying that one
particular transistor is the most important in an amolifier