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 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

There is a floating table with one row and four columns at the top. The columns are labeled weeks 1-4 and the row is labeled Planned order releases. Columns one through three say 410, 500, and 500, respectively. Column 4 is blank. Beneath this is another table titled Routing Sheet and Labor Standards. There are three columns labeled Process, Set-up Time, and Run Time per Unit. The first row of the table says Cut, 0.2 hour, 0.1 hour. The second row says Drill, 0.1 hour, 0.02 hour. Beneath this table is another table titled Capacity Requirements (Standard Hours). Its columns are labeled weeks 1-4. Row one is titled Cut and row two is titled Drill. In the Cut row, column one says 0.2+0.1(410)541.2. Column two says 0.2+.1(500)550.2. Column three says 50.2, and column four is blank. In the Drill row, column one says 0.1+0.02(410)58.3. Column two says 0.1+0.02(500)510.1. Column four is blank.

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

Bar graph measuring percentage of capacity from week to week. The y-axis is titled Percentage of capacity and is labeled from 0 to 100 in increments of 25. The x-axis is titled Week and is labeled from 1-6. Dashed lines extend horizontally across the graph from each of the y-axis values. Week 1 has a value of about 85. Week 2 has a value of about 125. Week 3 has a value of 100. Week 4 has a value of about 115. Week 5 has a value of about 60. Week 6 has a value of 100.

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

Flow chart beginning with a box labeled Forecast. From this box there is an arrow pointing down to a box labeled Strategic Plan. Another arrow points down from this box to a box labeled Medium-range operations plan. Boxes labeled Marketing and Personnel are on either side of the Medium-range operations plan box. Double-headed arrows point between the Personnel and Medium-range boxes, as well as between the Marketing and Medium-range boxes. There is an arrow pointing down from the Medium-range box to a box labeled Master schedule. A double-headed arrow points from the Master schedule box to the Marketing box. There is another double-headed arrow pointing down from the Master schedule box to a box labeled Material requirements planning. Boxes labeled Bill of materials file and Inventory file are on the left and right of the Material requirements box. Arrows point from each of these boxes back to the Material requirements box. Another double-headed arrow points from this box to a box labeled Capacity loading. There is a double-headed arrow that points between the Capacity box and the Personnel box. An arrow points from the Capacity box to a box labeled Finance. There is an arrow from the Finance box that points back to the Master schedule box. On the left side of the chart, there is a box labeled Engineering and an arrow that points from that box to the Bill of materials file box below it.

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.

https://media.thuze.com/MediaService/MediaService.svc/constellation/book/AUBUS644.13.2/%7Bimages%7D9.5.jpg

©iStockphoto/Thinkstock

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

Three tables, each with 4 columns and 5 rows. There is an extra box on the left side of the table in the third row. On the first two tables, the rows are labeled Forecast demand, Scheduled receipts, Projected ending inventory, Planned receipts, and Planned order releases. The columns are labeled weeks 31-34. The first table is titled Dallas Service Center. In the forecast demand row, columns 31-34 read 600, 300, 400, and 400, respectively. In the Scheduled receipts row, column 31 reads 1,000. In the Projected ending inventory row, the extra box to the left of the table reads 650, and columns 31-34 read 50, 750, 350, and 950. In the Planned receipts row, column 34 reads 1,000. In the Planned order releases row, column 32 reads 1,000. The second table is titled Phoenix Service Center. In the forecast demand row, columns 31-34 read 250, 300, 350, and 450. In the Scheduled receipts row, column 31 reads 500. In the Projected ending inventory row, the extra box to the left of the table reads 300. Columns 31-34 read 550, 250, 400, and 450. In the Planned receipts row, columns 33 and 34 each read 500. In the planned order releases row, columns 31 and 32 each read 500. The third table, titled Southwest Regional Warehouse, has rows labeled Gross requirements, Scheduled receipts, Projected ending inventory, Planned receipts and Planned order releases. In the Gross requirements row, columns 31 and 32 read 500 and 1,500. In the Schedule receipts row, column 31 reads 900. In the Projected ending inventory row, the extra box to the left of the table reads 100. Columns 31 and 32 read 500 and 0. In the Planned receipts row, column 32 reads 1,000. In the Planned order releases row, column 31 reads 1,000. On the Dallas table, from the box where column 32 and the Planned order releases row intersect, there is an arrow that points to the box where the column 32 and the Gross requirements row intersect on the Southwest table. On the Phoenix table, from the box where column 31 and the Planned order releases row intersect, there is an arrow that points to the box where the column 31 and the Gross requirements row intersect on the Southwest table. Also on the Phoenix table, from the box where column 32 and the Planned order releases row intersect, there is an arrow that points to the box where the column 32 and the Gross requirements row intersect on the Southwest table.

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

There are two boxes on level one of the flowchart. The first is blue and says Customer open order file and the other is pink and says Customer order management There is a double-headed arrow between these two boxes. There is an arrow pointing down from Customer order management to a pink box on the second level that says Production planning. An arrow points down from this box to a pink box on the third level that says Requirements planning. There are two arrows on the left and right of this box pointing to blue boxes, also on the third level. The box on the left says Bill of material file; the box on the right says Inventory file. From the Requirements planning box, there are two arrows that point down to two pink boxes on the fourth level. These boxes are labeled Equipment preparation and Material procurement. To the right of the Material procurement box is a blue box that says Order for parts from suppliers file. There is a double-headed arrow pointing between these two boxes. On the left side of the Equipment preparation box, there are two blue boxes: one is between the third and fourth levels, and the other is between the fourth and fifth levels. The top box says Tool availability file, and the bottom box says Equipment uptime and maintenance history files. There is a double-headed arrow pointing between each of these boxes and the Equipment preparation box. The Material procurement and Equipment preparation boxes are connected to a box labeled Production scheduling on level five. On the left and right side this box there are blue boxes labeled Labor availability file and Routings of parts file, respectively. From the Production scheduling bow, there is an arrow that points down to a box, labeled Shop floor controls, on the sixth level. This box is connected with arrows to six boxes on the seventh level. From left to right, these boxes read: Meeting production targets; Cost performance; Quality performance; Update inventory; Update customer open orders; and Machine history maintenance, and reliability.

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