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DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS
Unit 3: MRP Systems (Materials Requirements Planning)
Dependent and independent demand
The objective of stocks management when the demand is irregular, discrete and dependent
(determined with certainty). To assure the availability of desired quantities on time in the right
place not to control stocks level as the classical management.
MRP: Planning of materials needs.
This is a computerized technique to manage production stocks and to program production quantities. The result is a Materials planning from the MPS (Master Production Schedule).
How does it work? It is a hierarchical decision process with basic information, process and outputs. It has some features: - Products ≥ Components - Prospective methodology - Delay in time - Capacity constraints are not taken into account - Integrated data base Hierarchical decision process Level 1: Master production schedule→ Moment and quantities of final products to be manufactured.
Level 2: Materials requirements planning→ Specific components and quantities to be produced during a certain period of time.
DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS Level 3: Operations control→ When and how should operations be processed in the different workstations.
Basic information (Important) Final product quantities with indication of delivery dates → Master Production Schedule Manufacturing structure and product assembly → Bill of materials Other data concerning subsets and components (delivery times, available stocks in the warehouse, programmed receptions, etc.) → Inventory records MRP basic diagram Fundamental inputs to a MRP system 𝑴𝑷𝑺(𝑴𝒂𝒔𝒕𝒆𝒓 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝑺𝒄𝒉𝒆𝒅𝒖𝒍𝒆) - The MPS comes from the disaggregation of the family of products of the Aggregate Plan to specific final products.
- Planning horizon: 40 to 52 weeks - Timing cubes: weeks - The first part of MPS must be stable. The rest can suffer variations.
- The MPS must be updated each week. The first week is removed and a last week is added (roll-plan) - The MPS must be realistic.
𝑩𝑶𝑴(𝑩𝒊𝒍𝒍 𝒐𝒇 𝒎𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔) 𝒂𝒏𝒅 𝑷𝒓𝒐𝒅𝒖𝒄𝒕 𝑺𝒕𝒓𝒖𝒄𝒕𝒖𝒓𝒆 - Bill of Materials: It’s a description of the structure to get a certain product.
- The Bill of Materials is frequently expressed as a Product Structure.
- It shows clearly: o Components included in the product.
DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS o Quantities of each component to get 1 unit of the product.
o The sequence in which components are combined to get the final product.
Product Structure Back to Fundamental inputs to a MRP system… 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑹𝒆𝒄𝒐𝒓𝒅𝒔 𝑭𝒊𝒍𝒆 - Fundamental source of information concerning inventories.
- There are three main files that help to manage inventory: o Item master file: Each component has one standard identification (numeric or alphanumeric), supplying times, security stocks, lot size, lowest stock level permitted, possible percentage of defective products, etc.
o Transaction file indicates the level of inventory of each part.
o Secondary file: information about special orders, changes, etc.
Inventory records file 𝑻𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏 𝑭𝒊𝒍𝒆 - Gross requirements: quantity of components that are needed to comply the order and delivery dates.
- On-hand inventory (or availability) of the different articles in the warehouse.
- Compromised quantities. Quantities that comply previous orders.
- Scheduled receipts, in quantity and timing, of placed orders.
DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS - Net requirements: Difference between gross requirements and availabilities + pending orders.
- Planned order receipts: Arrival times of planned orders (internal or external).
- Planned order release: Previous quantities delayed backwards according to its supplying time (Ts).
Lot sizing in production planning Methods for calculating the optimum lot size generally depend on balancing setup costs with holding costs. These costs must be known with some reliability. The following are some quantitative methods for determining lot size: - Lot-for-lot technique. It’s the simplest technique. In this approach, the lot size manufactured, or purchased is equal to the net requirements at each period. This method minimizes inventory holding costs BUT setup costs are incurred for each operation. In this case, orders and release periods are variable.
- Constant period technique. Firstly, the interval between orders is fixed intuitively (ex.: every 2 weeks). The lot size equals the sum of net requirements in that interval. The material must arrive in the first calculated period so that no subsets (or parts) are missing in the first period.
- Periodic ordering quantity method. This method is similar to the previous technique. In this case, the constant period is determined taking into account the Economic Ordering Quantity (EOQ) as seen in classical management of stocks. Example (article R from previous MRP example): Data: DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS Economic ordering quantity: Number of orders: Constant period: Orders should be placed every 2 periods.
- Minimum unitary cost technique. This method tries to minimize the total unitary cost (setup + holding costs). Example (article R from previous MRP example): 𝑪𝑷𝒊 = 𝑪𝑷𝒖𝒏𝒊𝒕 + 𝑵𝑵𝒊 ∗ 𝒏º 𝒐𝒇 𝒘𝒆𝒆𝒌𝒔 𝒂𝒕 𝒘𝒂𝒓𝒆𝒉𝒐𝒖𝒔𝒆 𝑪𝑷𝒊 𝑪𝑷𝒖𝒏𝒊𝒕 𝑸 𝑪𝒖𝒊 = 𝑪𝑷𝒊 𝑪𝒆𝒊 + 𝑸 𝑸 DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS - Minimum total cost technique. This technique tries to balance the sum of carrying costs and order costs. Consequently, the lot size is fixed when possession costs equal emission costs. Example (article R from previous MRP example): - Silver Meal technique. In this case, the lot that generates the minimum total cost (holding costs + setup costs) per period is selected for the interval considered. Total cost per period: Example (article R from previous MRP example): Safety or security stocks It is convenient to hold a safety stock for final products and for components that have a partial independent demand (spare parts).
The safety stock for articles of dependent demand can be reduced even though it’s NOT convenient to remove it completely.
To avoid a stock break-up, it’s possible: - To maintain fixed quantities as safety stock.
To increase lead (or supplying) times with a security time margin.
To increase the forecasted needs.
DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS - To hold a certain free production capacity in the factory Reduction of safety stocks If problems arise from deviations in supplying times, it will be convenient to change beginning dates for the different articles. This measure avoids the need of safety stocks.
The lot sizing techniques can decrease the size of the safety stock . In case of unexpected market demand, it’s possible to use the lots corresponding to further needs.
The excess rounding in lot sizing generates an excess production which can be used after the order reception. If we wish to minimize the safety stock, it is necessary to identify the causes that provoke this stock and then, to try to reduce or avoid them.
MRP update Any factor that modifies any of the MRP system inputs, in other words, - Master Production Schedule Bill of Materials Inventory records file changes the Net Production Requirements and the orders programming. It is necessary that the MRP inputs are constantly updated so that final results are reliable. In case of modifications in the system inputs, it is necessary the system reprogramming.
Principal reprogramming systems A. Regenerative MRP a. It has a traditional perspective.
b. The complete calculations are redone if there changes in MRP inputs.
c. Large results d. Calculation timing is long due to high number of operations to develop.
e. Adequate in stable environments.
B. Net change MRP a. Modern method.
b. Partial material explosions. Only applied to the articles that have suffered any change.
c. Data processing is lower.
d. Rapid updates.
e. Adequate in changing environments.
MRP outputs - Materials Planning: contains the planned orders (production or purchase orders) for all the articles.
Inventory transactions: indicate the need to place a new order or to adjust the arrival date or quantities of pending orders.
Although the computer generates the files, the planner must make the adequate decisions taking into account the results.
MRP secondary outputs Depend on the software used. Some of the secondary outputs are the following: DIRECCIÓ D’OPERACIONS|UNIT 3|JAVIER RAMOS NICOLÁS - Exceptional individual messages: They only appear in the computer monitor. They are error messages of the system that help to maintain the data accuracy.
Report of the Sources of Needs: Relates the gross requirements of each article with the sources that generate them.
Report of ABC analysis according to planning: shows the value of forecasted stock after an ABC analysis.
Material-in-Excess Report Purchases agreement Report: shows the value of planned orders to suppliers and indicates the different payments in different periods of time.
Supplier analysis Report: generates a summary of the suppliers’ behaviour with respect to supplying times, price and quality.
These secondary outputs vary a lot from one company to another. They also depend on the software used Manufacturing resource planning (MRP II) It Is an extension of MRP with closed feedback loop. It takes part in different tasks through a on-line computerized process and a unique company database.
- Strategic planning Production programming Orders planning of different articles Priorities programming and activities to develop in different shop floors.
Capacity planning and control Stocks management.
In addition, it obtains from the outputs: - Costs calculation Financial information in monetary units MRP functions in financial and accounting department It MUST take into account the calculation of standard costs, that permits the distribution of costs among the different articles, operations and working centres.
Other functions are: - Sales budget development (short term calculation by multiplying customer orders by sales prices).
Procurement budget (multiplying the quantities of purchase orders to suppliers by the average purchase prices).
Budget of Planned Inventories.
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