List of Operations Management Formulas

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MOS 330: Operations Management
       Professor Burjaw
           Fall 2009

         2.2 Material Requirements Planning (MRP)   1
                                     MATERIAL REQUIREMENTS PLANNING (MRP)
Material Requirements Planning 2.2

                                      Learning Objectives:

                                      1. Disaggregation Process                    Formula

                                      2. What MRP is and does
                                      3. Inputs and outputs of MRP
                                      4. Scheduling basics
                                      5. Scheduling sequencing rules

                                               2.2 Material Requirements Planning (MRP)      2
Material Requirements Planning 2.2                               1. Introduction

                                     Items           Production Planning                 Capacity Planning   Resource level
                                     Product lines       Aggregate                          Resource
                                     or families       Production Plan                  Requirements Plan    Plants

                                     Individual      Master Production                       Rough-Cut       Critical work
                                     products            Schedule                           Capacity Plan    centers

                                                                                           Capacity          All work
                                     Components              MRP                       Requirements Plan     centers

                                     Manufacturing       Shop Floor                         Input/Output     Individual
                                     operations           Schedule                             Control       machines

                                                       2.2 Material Requirements Planning (MRP)                           3
                                      Aggregate planprovides a framework for shorter-term
                                     production and capacity decisions
Material Requirements Planning 2.2

                                      Disaggregation: The process of breaking an aggregate plan
                                     into more detailed plans

                                      Material Requirements Planning (MRP): Computerized
                                     inventory and production control system
                                         Introduced in the 1960s

                                         Dependent demand inventory: parts, components, raw materials

                                      Concerned with components                   needed to make end items
                                         What is required, how much is required, When it is required

                                         Keep inventory levels      minimum

                                                      2.2 Material Requirements Planning (MRP)                4
                                                          2. MRP System Overview
                                     Master Production                      Inventory                     Product
Material Requirements Planning 2.2

                                         Schedule                           Master File                Structure File

                                               1. Explosion: disassembly of the end product into its
                                               2. Netting: (Net requirements) = (Gross reqts) – (On-
                                               hand inventory) – (Quantity on order) Formula

                                               3. Offsetting: order release is offset by production or
                                               delivery lead time
                                               4. Lot sizing: determine the batch size to be purchased
                                               or produced

                                                                   Planned Order Releases

                                       Work Orders                       Purchase Orders            Action Notices

                                                         2.2 Material Requirements Planning (MRP)                5
                                                        2.1 Master Production Schedule

                                     • States the requirements for individual end items by date and quantity
Material Requirements Planning 2.2

                                        Aggregate Production Plan
                                        Month    Jan                         Feb                      Mar          Apr
                                        Days      21                          19                      23            20
                                        Plan     21,000                      19,000                   23,000    20,000

                                       Master Production Schedule for April
                                       Week      1                          2                         3             4
                                       Prod X   2,000                      4,000                     5,000         2,500
                                       Prod Y   3,000                      1,000                                   2,500
                                       Totals   5,000                      5,000                     5,000         5,000

                                        MPS is Not                                          MPS should be
                                        • a sales forecast                                  • anticipated build schedule
                                        • a wish list                                       • realistic and achievable
                                        • a final assembly schedule                         • may not be feasible

                                                          2.2 Material Requirements Planning (MRP)                         6
                                                      2.2 Inventory Master File

                                     Description                                     Inventory Policy
Material Requirements Planning 2.2

                                       Item                             Board          Lead time                 2
                                       Item no.                          7341          Annual demand         5,000
                                       Item type                       Manuf.          Holding cost              1
                                       Product/sales class               Ass’y         Ordering/setup cost      50
                                       Value class                           B         Safety stock             25
                                       Buyer/planner                      RSR          Reorder point            39
                                       Vendor/drawing                  07142           EOQ                     316
                                       Phantom code                          N         Minimum order qty       100
                                       Unit price/cost                    1.25         Maximum order qty       500
                                       Pegging                               Y         Multiple order qty      100
                                       LLC                                   3         Policy code               3
                                     Physical Inventory                              Usage/Sales
                                       On hand                            100          YTD usage/sales       1,100
                                       Location                          W142          MTD usage/sales          75
                                       On order                            50          YTD receipts          1,200
                                       Allocated                           75          MTD receipts              0
                                       Cycle                                3          Last receipt           8/25
                                       Difference                          -2          Last issue             10/5

                                                       2.2 Material Requirements Planning (MRP)                 7
                                                         2.3 Product Structure File

                                     Product structure
Material Requirements Planning 2.2

                                                                                      Clipboard       Parent

                                                  Clip Assembly                           Rivet                     Board
                                                        (1)                                (2)                       (1)

                                       Top Clip    Bottom Clip         Pivot          Spring           Pressboard           Finish
                                         (1)           (1)              (1)             (1)                (1)              (2oz.)

                                        Sheet        Sheet           Spring            Iron
                                        Metal        Metal          Steel (10         Rod (3
                                        (8 in2)      (8 in2)           in.)             in.)

                                         Bill of material (BOM): lists which and how many items that go into a

                                                           2.2 Material Requirements Planning (MRP)                           8
Material Requirements Planning 2.2   Example 1: Based on the product structure diagram on page 7:

                                     a) How much spring steel is needed to fill an order of 500 clipboards if on-hand
                                        inventory = 0? (Explosion & netting)

                                     b) How much sheet metal is needed to fill an order of 1000 clipboards if on-hand
                                        inventory = 7000? (Explosion & netting)

                                      c) In order to produce 1000 clipboards, subassembly takes 1 day and final
                                         assembly takes 1 day. For b), when should an order for sheet metal be placed
                                         if 1000 clipboards are needed by April 11? Order lead time = 5 days.

                                      d) In b), if the order lot size is 2000, how much would you order? (Lot sizing)

                                                          2.2 Material Requirements Planning (MRP)                  9
                                     3. MRP as an Analysis Tool
                                      MRP is not a demand planning tool
                                          • Input quantities are production quantities, not demand
Material Requirements Planning 2.2

                                          • Production plan derived from aggregate production planning

                                      MRP is deterministic
                                          • All input numbers are known
                                          • Problems show up as the action notices

                                      MRP is a simulation tool
                                           Determines MPS feasibility

                                           Effect of a change in one part on the rest of the system

                                           Does not solve problems on its own: requires human intervention

                                        Main MRP Problem = shortages
                                           Purchase or produce more ahead of time
                                           Move some jobs forward (expediting) or backward (de-expediting)

                                                      2.2 Material Requirements Planning (MRP)           10
                                     4. Scheduling
                                      Allocation of resources to accomplish specific tasks
                                        • Last stage of planning before production
Material Requirements Planning 2.2

                                      Scheduling objectives
                                        •   Meet customer due dates
                                        •   Minimize job lateness, response time, completion time, overtime,
                                            idle time, and work-in-process inventory
                                        •   Maximize labour or equipment utilization
                                      Scheduling performance measures
                                        •   Job flow time: total time a job spends in the shop incl. waiting,
                                        •   Makespan: total time to finish a batch of jobs
                                        •    Average number of jobs in the system: measure of WIP
                                        •   Job lateness: ahead of, on, or behind the schedule
                                        •   Job tardiness: how long after the due date the job is completed
                                                      2.2 Material Requirements Planning (MRP)           11
Material Requirements Planning 2.2            4.1 High Volume vs. Low Volume

                                     High Volume                                      Low Volume
                                      Length of a production                          Coordination difficulty
                                     run, flow schedule, line                         from having a variety of
                                     balancing                                        orders, tasks & process
                                      Bottleneck: an operation                       requirements
                                     with the lowest effective
                                                                                       Loading: assigns jobs to
                                                                                      work centres according to
                                      Optimized Production                           performance efficiency,
                                     Technology (OPT): a                              skill requirements, and job
                                     technique used to schedule                       priority
                                     bottleneck systems
                                      Theory of Constraints                           Sequencing: determines
                                     (TOC): a management                              the sequence in which jobs
                                     philosophy that extends                          assigned to a work centre
                                     the concepts of OPT                              are to be processed

                                                   2.2 Material Requirements Planning (MRP)                         12
                                                     4.2 Sample Sequencing Rules

                                      First come first served (FCFS)
Material Requirements Planning 2.2

                                      Last come first served (LCFS)
                                      Earliest due date first (EDD): min. tardiness
                                     Shortest processing time first (SPT): min. average flow time
                                     Longest processing time first (LPT)

                                     “Formulas” for Scheduling Performance Measures:

                                     Job flow time = (waiting time) + (processing time)                      sheet

                                     Makespan = finish time for the last job             sheet

                                     Avg. # jobs in the system = (all jobs job flow time)/(makespan)                  sheet
                                     Job lateness = all jobs (finish time  due time)             sheet

                                     Job tardiness = only late jobs (finish time  due time)                Formula

                                                        2.2 Material Requirements Planning (MRP)                                 13
                                     Example 2: A Hospital lab has one MRI and 5 patients need scheduling.
                                       Job:                                          A                B       C     D          E
                                       Processing time (hrs):                        4                7       2     6          3
Material Requirements Planning 2.2

                                       Pickup time (hrs from now):                   6                12      7     16         8

                                                              Flow time                               Tardiness          Tardi-
                                             Sequence                                                               flow
                                                              =wait+process                           =finish-due         ness


                                                           2.2 Material Requirements Planning (MRP)                       14
                                                 4.3 Other Types of Operations Scheduling
                                        Scheduling in services
Material Requirements Planning 2.2

                                           Complicated because demand is often variable and difficult to
                                           Scheduling services:     appointments, reservations, posted
                                          schedules, backlogs
                                           Staff scheduling: peak demand, floating, on-call, seasonal, part-

                                        Maintenance scheduling
                                           Repair scheduling

                                           Preventative   maintenance

                                                       2.2 Material Requirements Planning (MRP)            15

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