Space Age Furniture
9.6
Extensions of MRP
The discussion of MRP thus far has focused on the basics, often referred to as "little MRP." It is important to understand how MRP can be extended to make it more useful and applicable to areas of the business beyond operations.
Capacity Requirements Planning
As mentioned previously, the master schedule is developed from the aggregate plan. Thus, the master schedule can provide much more exact measures of the capacity requirements than the aggregate plan can. As the master schedule is developed, rough-cut capacity planning is used to check capacity requirements against capacity availability. Rough-cut capacity planning does not take into account lead-time offsetting, or the amount ahead of time that component parts must be made to meet the master schedule for end items. MRP can form the basis for much more detailed capacity calculations because MRP performs lead-time offsetting when it generates planned order releases. For parts made in-house, the planned order releases generated by MRP indicate exactly when certain parts must be made and in what quantity. Those planned order releases will initiate a series of production requirements on the machines and equipment used to produce those parts and subassemblies. These demands consume a portion of capacity of the machines and equipment. Using a routing sheet, which indicates the sequence of machines or work centers through which a part must pass during processing and the labor standards, it is possible to determine capacity requirements at each operation.
Figure 9.21 shows planned order releases for tricycle axle supports, along with information contained in the routing sheet for that part. In each week, the run time on each machine is multiplied by the order quantity for that week and then added to set-up time to get capacity requirements. This procedure is done for each work center and each week.
Figure 9.21: Capacity requirements planning for tricycle axle supports
The information generated in Figure 9.21 is only for one part. Many other parts would also generate capacity requirements at the same work centers. By adding together all the capacity requirements for each work center in each week, a total figure for capacity requirements will be generated. The total capacity requirements placed on a work center during a given time period are called the load. The output of capacityrequirements planning (CRP) is usually in the form of a load report, or load profile, which is a graphical representation of the load on each work center by time period. An example of a load report is shown in Figure 9.22.
Figure 9.22: Drill work center load report
Closed-Loop MRP
Capacity requirements planning is of significant benefit in ensuring that a company's plans are realistic and can be implemented. However, MRP can only project what should happen if demand is as forecasted on the master production schedule. In reality, machines may break down, deliveries from suppliers may be delayed, or some other calamity may occur. If these events are not reflected back in the MRP plan, then that plan will be invalid.
Closed-loop MRP provides feedback about the execution of production plans. By tracking what actually happens on the shop floor and then reflecting that information in the MRP record, plans can be kept valid. Instead of "launching" orders with no information about completion, closed-loop MRP provides the feedback loop necessary to keep information up to date.
Manufacturing Resource Planning (MRP II)
Many companies have found that material requirements planning can greatly improve their operations through better planning. MRP also forces companies to better coordinate the activities of operations, marketing, and purchasing. The master schedule will have implications for finance, personnel, workforce requirements, and purchases of materials. A company must be sure that its operations plan fits appropriately with the business plan. All functional areas must base their activities on the plan. To do that, an extension of MRP has been developed called manufacturing resource planning.
Manufacturing resource planning, or MRP II, as it is commonly called to differentiate it from material requirements planning (MRP), is a way of tying all parts of an organization together to build on the strategic plan. The strategic plan is an overall blueprint that specifies the company's objectives and how it plans to reach them. The operations function will develop its own goals and plans to help achieve the corporate objective, as will the marketing, finance, and all other departments of the organization. The actions of one functional area, however, will have an impact on the other areas. For instance, if marketing plans a promotional effort that will greatly increase sales, then operations must be ready and able to produce enough product to meet that increased demand. Hiring more employees or buying additional equipment, which will, in turn, have a major impact on the financial area, may be necessary. Because the operations activity is such an integral part of any organization, it can be especially vulnerable to the actions taken by other departments, and will have a large influence on other areas of the company through its actions.
Planned orders can also provide information about expected expenditures. Purchase order releases can be used to estimate future payments to suppliers. Shop order releases will generate needs for machine time and labor, so that they can also be used to estimate future expenses. Before the development of MRP II, companies used cost accounting primarily as a way to determine success after the fact. It was a way to find out what it had cost to do what was already done.
MRP II can change the way companies operate. By generating cost projections, it is possible to plan for production costs ahead of time and then compare actual costs to these projections. Any major deviations can be spotted and investigated. A related advantage with MRP II is that it can be used to answer what-if types of questions. Using MRP II, a company can estimate the effect of a supplier cost increase and develop strategies to address it, instead of trying to respond after the fact. Figure 9.23 shows how MRP II connects all parts of the organization.
Figure 9.23: MRP II
MRP in Service Organizations
Although MRP was originally developed for manufacturing companies, it can also be applied to service organizations. Instead of the master schedule representing goods to be produced, it can represent services to be provided.
For example, an airline's master schedule could show the number of flights from different cities each week. In this case, the materials required to provide that service include fuel for the airplanes, meals for the passengers, and other related items. Likewise, hospitals can develop a master schedule showing the number of different types of surgeries each week.
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When airlines create a master schedule they also compile a list of materials needed to provide that service such as fuel for the airplanes and snacks for the passengers.
Materials required include various surgical supplies. This is a variant of MRP, known as hospital requirements planning (HRP).
Although some surgeries are emergencies, many others are scheduled in advance. Historical information about emergency surgeries can be combined with those that are scheduled to develop a master schedule. MRP can then be used to convert the master schedule into requirements for medical equipment, instruments, supplies, operating rooms, and staff. Houston's Park Plaza Hospital has used this approach to improve management of expensive inventory.
Distribution Requirements Planning (DRP)
In the retail setting, the MRP approach has been applied so widely that a variant of MRP, called distribution requirements planning(DRP), has been developed. In this way, the MRP planning logic is applied to requirements for retail outlets or warehouses.
Distribution networks often consist of local outlets or service centers that are supplied from local distribution centers. In turn, these distribution centers may be fed by a regional or national warehouse. By thinking of each level in the distribution network as a level in a bill of materials, it is possible to see that orders placed by the service centers will generate gross requirements at the regional warehouses. Figure 9.24 shows an example of distribution requirements planning.
Giant Food Company, a supermarket chain, uses DRP as part of its ECR (efficient consumer response) approach to supply chain management. DRP allows the company to connect its POS (point-of-sale) information from stores to inventory levels throughout the supply chain, making that information available to all supply chain partners. DRP then "pulls" items through the system based on customer demand, facilitating one of the basic ideas behind ECR.
Figure 9.24: Distribution requirements planning
Role of Management Information Systems in Planning
MRP is usually calculated on a computer because of the large volume of computations that must be performed and because much of the information, such as bills of material and inventory records, is stored on computerized databases. MRP II, by including more organizational functions within its scope, further increases the need for computerized information. As a result, companies very often use computerized information systems for operations planning and control activities. One such system and the data files that it works with are shown in Figure 9.25. Enterprise resource planning (ERP) uses a single integrated database for the entire organization. In this way, each part of the organization is connected, and efforts to break down barriers within the organization are facilitated.
Figure 9.25: Information system for managing and controlling operations
9.6
Extensions
of
MRP
The
discussion
of
MRP
thus
far
has
focused
on
the
basics,
often
referred
to
as
"little
MRP."
It
is
i
mportant
to
understand
how
MRP
can
be
extended
to
make
it
more
useful
and
applicable
to
ar
eas
of
the
business
beyond
operations.
Capacity
Requirements
Planning
As
mentioned
previously,
the
master
schedule
is
developed
from
the
aggregate
plan.
Thus,
the
master
schedule
can
provide
much
more
exact
measures
of
the
capacity
requirements
than
the
aggregate
plan
can.
As
the
master
schedule
is
developed,
rough
-
cut
capacity
planning
is
used
to
check
capacity
requirements
against
capacity
availability.
Rough
-
cut
capacity
planning
does
not
take
into
account
lead
-
time
offsetting,
or
the
amount
ahead
of
time
that
component
parts
must
be
made
to
meet
the
master
schedule
for
end
items.
MRP
can
form
the
basis
for
much
more
detailed
capacity
calcula
tions
because
MRP
performs
lead
-
time
offsetting
when
it
generates
planned
order
releases.
For
parts
made
in
-
house,
the
planned
order
releases
generated
by
MRP
indicate
exactly
when
certain
parts
must
be
made
and
in
what
quantity.
Those
planned
order
releases
will
initiate
a
series
of
production
requirements
on
the
machines
and
equipment
used
to
produce
those
parts
and
subassemblies.
These
demands
consume
a
portion
of
capacity
of
the
machines
and
equipment.
Using
a
routin
g
sheet
,
which
indicates
the
sequence
of
machines
or
work
centers
through
which
a
part
must
pass
during
processing
and
the
labor
standards,
it
is
possible
to
determine
capacity
requiremen
ts
at
each
operation.
Figure
9.21
shows
planned
order
releases
for
tricycle
axle
supports,
along
with
information
cont
ained
in
the
routing
sheet
for
that
part.
In
each
week,
the
run
time
on
each
machine
is
multiplie
d
by
the
order
quantity
for
that
week
and
then
added
to
set
-
up
time
to
get
capacity
requirements.
This
procedure
is
done
for
each
work
center
and
each
we
ek.
Figure
9.21:
Capacity
requirements
planning
for
tricycle
axle
supports
9.6
Extensions of MRP
The discussion of MRP thus far has focused on the basics, often referred to as "little MRP." It is i
mportant to understand how MRP can be extended to make it more useful and applicable to ar
eas of the business beyond operations.
Capacity Requirements Planning
As mentioned previously, the master schedule is developed from the aggregate plan. Thus, the
master schedule can provide much more exact measures of the capacity requirements than the
aggregate plan can. As the master schedule is developed, rough-
cut capacity planning is used to check capacity requirements against capacity availability. Rough
-cut capacity planning does not take into account lead-
time offsetting, or the amount ahead of time that component parts must be made to meet the
master schedule for end items. MRP can form the basis for much more detailed capacity calcula
tions because MRP performs lead-
time offsetting when it generates planned order releases. For parts made in-
house, the planned order releases generated by MRP indicate exactly when certain parts must
be made and in what quantity. Those planned order releases will initiate a series of production
requirements on the machines and equipment used to produce those parts and subassemblies.
These demands consume a portion of capacity of the machines and equipment. Using a routin
g sheet, which indicates the sequence of machines or work centers through which a part must
pass during processing and the labor standards, it is possible to determine capacity requiremen
ts at each operation.
Figure 9.21 shows planned order releases for tricycle axle supports, along with information cont
ained in the routing sheet for that part. In each week, the run time on each machine is multiplie
d by the order quantity for that week and then added to set-
up time to get capacity requirements. This procedure is done for each work center and each we
ek.
Figure 9.21: Capacity requirements planning for tricycle axle supports