Sc2x w3l2 MRP DRP Clean

CTL.
SC2x -Supply Chain Design
Introduc)on to Material and

Distribu)on Requirements Planning
MIT Center for

Transportation & Logistics
Supply Chain Integration
Inventory Deployment
Materials Physical
Management Distribution
Vendor Procurement Production Marketing Customer
MRP MRP MRP MPS DRP DRP DRP
Information / Planning
Material Requirements Planning

Master Production Scheduling
Distribution Requirements Planning
2
CTL.SC2x - Supply Chain Design Lesson: Production Planning
Delivery Promises
3
Using the MPS to Make Promises
How can sales & distribu)on determine what promises to make
for availability of product to customers?
n  Make to Stock – how much of the forecasted demand is “consumed” by orders?
n  Make to Order – how much of the planned capacity is “commiGed” to orders?
Available to Promise (ATP)
n  The por)on of exis)ng inventory and/or planned produc)on that is not
commiGed or consumed
n  Provides sales and distribu)on visibility into what is s)ll available to sell
n  Requires tracking of commiGed or actual sales
Two Flavors
n  Discrete – each produc)on cycle is planned independently
n  Cumula)ve – available inventory carries over to next produc)on cycle
4
Calcula)ng the ATP (Discrete vs. Con)nuous)
Production Plan – solved using FPH model of choice.
Committed Customer Orders
Projected Available Balance
= It = It-1 + Pt – MAX[Ft ,Ct] Forecast of demand by period
Discrete
ATP1 = IOH + MPS - Committed Prior to Next Run = 30 + 45 – 5 – 8 – 12 = 50 units
ATP4 = MPS - Committed Prior to Next Run = 45 – 10 – 10 – 6 = 19 units
Cumulative
ATP1 = IOH + MPS - Committed Prior to Next Run = 30+45–5–8–12 = 50 units
ATP4 = ATPprevious + MPS - Committed Prior to Next Run = 50+45–10–10–6 = 69 units
5
Calcula)ng the ATP (Discrete vs. Con)nuous)
Lets roll to period 2 – we sold 5 in period 1 and received the following orders:
Orders as of Time Period 1
Order # Period Quan3ty
1 2 7
2 3 4
3 5 10 Should we accept these orders?
4 6 20 What does this do to our ATP going forward?
Time Fencing is often used to stabilize production planning (demand and planning)
•  if t < Demand_Fence then use only committed orders for MPS (ICE/FROZEN)
•  if Demand_Fence < t < Planning_Fence then limited MPS overrides (SLUSH)
•  if t > Planning_Fence then all MPS changes allowed (within limits) (WATER/LIQUID)
6
Material Requirements Planning (MRP)
7
MRP / DRP Integration
Purchase Orders
C C C C C C C C
SA SA SA SA
MRP
A A
MPS Product
CDC
DRP RDC RDC
Retail Retail Retail Retail
Sales/Marketing Plan
8
Complex End Items
While end item demand is independent, the

demand for components is dependent on,
and indentured to, the end item.
9
MRP Basics
•  What is an MRP?
n  Material Requirements Planning (MRP) systems ensure that all
components and parts required for an end item are on hand when
needed.
•  Primary ques)ons the MRP answers
n  What should be ordered or manufactured?
n  How much should be ordered or manufactured?
n  When should it be ordered or manufactured?
n  When should delivery be scheduled?
•  Inputs to the MRP system
n  Master produc)on schedule (MPS) -‐ end item demand and )ming
n  Inventory records – what is available, lead )me, safety stock etc.
n  Bills of Material (BOM) – what is needed to make the end item
10
Bills of Material (BOM)
11
Bills of Material Note that each part, sub-assembly, or
component might feed into multiple end items.
Multiple versus Single Level BOMs.
Bicycle
Bicycle
Model
Model5678
1234
Frame Front Wheel Saddle Rear Wheel Handlebars
Fork Rim Shaft Rim Bar

Front fender Axle Seat Axle Gooseneck
Rear Fender Spoke Cover Spoke Grip
Sprocket Tire Tire
Crank Tube Tube
Product Tree Parent Pedal Sprocket

Chain guard
Bicycle
Model 1234
Components
Frame Front Wheel Saddle Rear Wheel Handlebars
Parent
Fork Rim Shaft Rim Bar
Front fender Axle Seat Axle Gooseneck Components
Rear Fender Spoke Cover Spoke Grip
Sprocket Tire Tire
Crank Tube Tube
Pedal Sprocket
Chain guard
12
BOM Explosion
Bicycle Level 0
Wheel (2) Crank Assembly (1) Level 1
Spoke (86) Sprocket (1)

Rim (1) Crank (2) Level 2
Pedal (2)
13
Bill of Materials
Product Sub-assembly Component Quantity Lead Time (wks)
Bicycle [1] 2
Wheel 2 1
Spoke 86 3
Rim 1 2
Crank Asm 1 1
Sprocket 1 4
Crank 2 3
Pedal 2 3
MRP Approach:
1.  Start with Level i demand (i=0)
2.  Find Gross Requirements (GR) and On Hand (OH) for Level i
3.  Find Net Requirements (NR) for Level i+1 (NR=GR-OH)
4.  Establish Planned Order Release (POR) for Level i using Level i lead times
5.  Set GR for Level i+1 based on POR for Level i
6.  Set i = i+1 and go to Step 2
14
MRP Plan for the Bicycle
Objective:
Have materials ready for having 25 bikes in week 8
ITEM PERIOD: 1 2 3 4 5 6 7 8
Bicycle GR 25
Gross On Hand
Requirement NR 25
POR 25
On Hand
>> >> >> >> >> >> >> >>
Net Wheel GR 50
Requirement On Hand
NR 50
Planned POR 50
Order Release >
Spoke GR 4300
On Hand
NR 4300
POR 4300
15
MRP Plan
Item Period: 1 2 3 4 5 6 7 8
Bicycle GR 25
OH
NR 25
POR 25
Wheel GR 50
OH
Level 0 NR
POR 50
50
Spoke GR 4300
OH
NR 4300
POR 4300
Tire GR 50
Level 1
OH
NR 50
POR 50
Crank Asm GR 25
OH
NR 25
POR 25
Sprocket GR 25
Level 2
OH
NR 25
POR 25
Crank GR 50
OH
NR 50
POR 50
How should I order

Pedal GR 50
OH 20 20 20 20 20
in this situa)on?
NR 30
POR 30
16
CTL.SC2x - Supply Chain Design Lesson: Production Planning Ordering Plan
Example of MRP Coordina)on
17
Example of Simple MRP
•  Situa)on End Item Mfg
n  Two Firms: Product
Orders
w  Independent opera)ons

Component Mfg
w  Lead )mes, set up & holding costs
n  Bill of Materials
w  End Item consists of 3 iden)cal Components
c c c
End Item
n  Demand for End Items
w  Monthly demand provided ahead of )me
•  Explore different Ways to Coordinate

n  Simple MRP rules
n  Capacitated MRP
n  Sequen)al vs. Simultaneous Op)miza)on
18
Simple MRP
Leadtime between Due In and POR
Output from End Item Model

becomes input to Component Model
Simple MRP logic is used to coordinate.

What is missing here? Anything?
19
Sequen)al Op)miza)on End Item firm optimizes
first, and feeds its POR
to the Component firm
which then optimizes.
Ordering is now optimized for the

End Item Manufacturer
Component Manufacturer takes EI output

and optimizes its orders
20
Sequen)al Op)miza)on
Component Mfg is
constrained at 300 units.
21
Simultaneous Op)miza)on
Component Mfg is
Component Mfg is
22
Comparisons of Methods
Method Component End Item Total

Mfg Cost Mfg Cost Cost
MRP – No op)miza)on $4,340 $7,000 $11,340
Sequen)al Op)miza)on $4,800 $4,300 $9,100
Simultaneous Op)miza)on $3,900 $4,800 $8,700
Some Ques)ons to Ponder:

•  Which method makes the most sense?
•  Why would this be hard to implement?
•  Why don’t we just re-‐op)mize with every change?
23
Benefits & Limita)ons of MRP
24
Benefits & Limitations
•  Benefits of MRP
n  Leads to lower inventory levels
n  Fewer stock outs
n  Less expedi)ng
n  Fewer produc)on disrup)ons
•  Limita)ons of MRP
n  Scheduling, not a stockage, algorithm
n  Does not address how to determine lot size
n  Does not inherently deal with uncertainty
n  Assumes constant, known lead)mes
n  Does not provide incen)ves for improvement
25
MRP: Evolution of Concepts
•  Simple MRP
n  Focus on "order launching“
n  Used within production – not believed outside
•  Closed Loop MRP
n  Focus on production scheduling
n  Interacts with the MPS to create feasible plans
•  MRP II [Manufacturing Resource Planning]
n  Focus on integrated financial planning
n  Treats the MPS as a decision variable
n  Capacity is considered (Capacity Resource Planning)
•  Enterprise Resource Planning Systems
n  Common, centralized data for all areas
n  Implementation is costly and effort intensive
n  Forces business rules on companies
26
Distribu)on Requirements Planning (DRP)
27
MRP / DRP Integra)on
Purchase Orders
C C C C C C C C
SA SA SA SA
MRP
A A
MPS Product
CDC
DRP RDC RDC
28
Distribution Resource Planning
•  Premises
n  Inventory control in a distribu)on environment
n  Many products, many stockage loca)ons
n  Mul)-‐echelon distribu)on network
n  Layers of inventory create "lumpy" demand
•  Concepts
n  Dependent demand versus independent demand
n  Requirements calcula)on versus demand forecas)ng
n  Schedule flow versus stockpile assets
n  Informa)on replaces inventory
"DRP is simply the applica)on of the MRP principles

and techniques to distribu)on inventories“
Andre Mar)n
29
A Distribution Network Example
Plant
Central Warehouse
Regional Warehouse 1 Regional Warehouse 2 Regional Warehouse 3
Retailer A Retailer D Retailer G

Retailer B Retailer E Retailer H
Retailer C Retailer E Retailer I
30
Central Warehouse Facility
The DRP Plan

Q=200, SS=0, LT=2 NOW 1 2 3 4 5 6 7 8
Period Usage 100 20 50 30 100 0 100 0
Gross Rqmt 100 20 50 30 100 0 100 0
Begin Inv 150 50 30 180 150 50 50 150
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - - 20 - - - 50 -
Planned Recpt 0 200 0 0 0 200 0
End Inv 150 50 30 180 150 50 50 150 150
Planned Order 200 200
Regional Warehouse One
Q=50, SS=15, LT=1 NOW 1 2 3 4 5 6 7 8
Period Usage 25 25 25 25 25 25 25 25
Gross Rqmt 40 40 40 40 40 40 40 40
Plant
Begin Inv 50 25 50 25 50 25 50 25
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - 15 - 15 - 15 - 15
Central Warehouse
Planned Recpt 0 50 0 50 0 50 0 50
End Inv 50 25 50 25 50 25 50 25 50
Planned Order 50 50 50 50
Regional Warehouse Two
Q=30, SS=10, LT=1 NOW 1 2 3 4 5 6 7 8
Retailer A Retailer D Retailer G Period Usage 10 10 10 10 20 20 20 20
Retailer B Retailer E Retailer H Gross Rqmt 20 20 20 20 30 30 30 30
Retailer C Retailer E Retailer I Begin Inv 20 10 30 20 10 20 30 10
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - 10 - - 20 10 - 20
Planned Recpt 30 0 0 30 30 0 30
End Inv 20 10 30 20 10 20 30 10 20
Regional Warehouse Three
Q=20, SS=10, LT=1 NOW 1 2 3 4 5 6 7 8
Period Usage 5 15 10 10 0 15 0 15
Note: Gross Rqmt 15 25 20 20 10 25 10 25
Gross Rqmt = Period Usage + SS Begin Inv

Sched Recpt
15
0
10
0
15
0
25
0
15
0
15
0
20
0
20
0
Net Rqmt - 15 5 - - 10 - 5
Planned Recpt 0 20 20 0 0 20 0 20
End Inv 15 10 15 25 15 15 20 20 25
31
Example: The DRP Plan
Q=50 , SS=15 , LT=1 Forecast
NOW 1 2 3 4 5 6 7 8
Period Usage 25 25 25 25 25 25 25 25
Gross Rqmt 40 40 40 40 40 40 40 40
Begin Inv 50 25 50 25 50 25 50 25
Sched Rcpt 0 0 0 0 0 0 0 0
Net Rqmt 15 15 15 15
Plan Rcpt 0 50 0 50 0 50 0 50
End Inv 50 25 50 25 50 25 50 25 50
POR 50 50 50 50
32
Q=30 , SS=10 , LT=1
NOW 1 2 3 4 5 6 7 8
Period Usage 10 10 10 10 20 20 20 20
Gross Rqmt 20 20 20 20 30 30 30 30
Begin Inv 20 10 30 20 10 20 30 10
Sched Rcpt 0 0 0 0 0 0 0 0
Net Rqmt 10 20 10 20
Plan Rcpt 0 30 0 0 30 30 0 30
End Inv 20 10 30 20 10 20 30 10 20
POR 30 30 30 30
33
Q=20 , SS=10 , LT=1
NOW 1 2 3 4 5 6 7 8
Period Usage 5 15 10 10 0 15 0 15
Gross Rqmt 15 25 20 20 10 25 10 25
Begin Inv 15 10 15 25 15 15 20 20
Sched Rcpt 0 0 0 0 0 0 0 0
Net Rqmt 15 5 10 5
Plan Rcpt 0 20 20 0 0 20 0 20
End Inv 15 10 15 25 15 15 20 20 25
POR 20 20 20 20
34
The DRP Plan for All Locations
Rolling Up Orders
NOW 1 2 3 4 5 6 7 8
CENTRAL
Period Usage 100 20 50 30 100 0 100 0
POR 200 200
REGION ONE
Period Usage 25 25 25 25 25 25 25 25
POR 50 50 50 50
REGION TWO
Period Usage 10 10 10 10 20 20 20 20
POR 30 30 30 30
REGION THREE
Period Usage 5 15 10 10 0 15 0 15
POR 20 20 20 20
35
Central Warehouse
Q=200 , SS=0 , LT=2
NOW 1 2 3 4 5 6 7 8
Period Usage 100 20 50 30 100 0 100 0
Gross Rqmt 100 20 50 30 100 0 100 0
Begin Inv 150 50 30 180 150 50 50 150
Sched Rcpt 0 0 0 0 0 0 0 0
Net Rqmt 20 50
Plan Rcpt 0 0 200 0 0 0 200 0
End Inv 150 50 30 180 150 50 50 150 150
POR 200 200
36
Central Warehouse Facility
The DRP Plan

Q=200, SS=0, LT=2 NOW 1 2 3 4 5 6 7 8
Period Usage 100 20 50 30 100 0 100 0
Gross Rqmt 100 20 50 30 100 0 100 0
Begin Inv 150 50 30 180 150 50 50 150
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - - 20 - - - 50 -
Planned Recpt 0 200 0 0 0 200 0
End Inv 150 50 30 180 150 50 50 150 150
Planned Order 200 200
Q=50, SS=15, LT=1 NOW 1 2 3 4 5 6 7 8
Period Usage 25 25 25 25 25 25 25 25
Gross Rqmt 40 40 40 40 40 40 40 40
Plant
Begin Inv 50 25 50 25 50 25 50 25
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - 15 - 15 - 15 - 15
Central Warehouse
Planned Recpt 0 50 0 50 0 50 0 50
End Inv 50 25 50 25 50 25 50 25 50
Q=30, SS=10, LT=1 NOW 1 2 3 4 5 6 7 8
Retailer A Retailer D Retailer G Period Usage 10 10 10 10 20 20 20 20
Retailer B Retailer E Retailer H Gross Rqmt 20 20 20 20 30 30 30 30
Retailer C Retailer E Retailer I Begin Inv 20 10 30 20 10 20 30 10
Sched Recpt 0 0 0 0 0 0 0 0
Net Rqmt - 10 - - 20 10 - 20
Planned Recpt 30 0 0 30 30 0 30
End Inv 20 10 30 20 10 20 30 10 20
Q=20, SS=10, LT=1 NOW 1 2 3 4 5 6 7 8
Period Usage 5 15 10 10 0 15 0 15
Note: Gross Rqmt 15 25 20 20 10 25 10 25
Gross Rqmt = Period Usage + SS Begin Inv

Sched Recpt
15
0
10
0
15
0
25
0
15
0
15
0
20
0
20
0
Net Rqmt - 15 5 - - 10 - 5
Planned Recpt 0 20 20 0 0 20 0 20
End Inv 15 10 15 25 15 15 20 20 25
37
Results and Insights
•  DRP is a scheduling and stockage algorithm
-‐-‐ it replaces the forecas)ng mechanism above the base
inventory level
•  DRP does not determine lot size or safety stock
-‐-‐ but these decisions must be made as inputs to the process
•  DRP does not explicitly consider any costs
-‐-‐ but these costs are s)ll relevant and the user must
evaluate trade-‐offs
•  DRP systems can deal with uncertainty somewhat
-‐-‐ using "safety )me" and "safety stock"
38
Key Take Aways
39
MRP / DRP Integra)on
Purchase Orders
C C C C C C C C
SA SA SA SA
MRP
A A
MPS Product
CDC
DRP RDC RDC
40
Key Take Aways
•  Master Produc)on Schedule (MPS)
n  Communicates forecasted demand for end items to manufacturing
n  Allows sales to determine Availability to Promise
n  Time fencing reduces produc)on “nervousness”
w  Frozen vs Slush vs Water
•  Material Requirements Planning (MRP)
n  Determines quan)ty and )ming of orders for components
n  Uses MPS & Bills of Material (BOM) as inputs
n  Coordina)on tool between firms
•  Distribu)on Requirements Planning (DRP)
n  Mirror image of MRP logic – roll up versus roll down
n  Plans for flowing of finished end items through network to market
41
CTL.SC2x -Supply Chain Design
Questions, Comments, Suggestions?
Use the Discussion!
“Dexter & Wilson – who would rather go inside to run an MRP than play with their ball.”
Yankee Golden Retriever Rescued Dog (www.ygrr.org)
MIT Center for

Transportation & Logistics caplice@mit.edu
Images
•  Slide 9
n  By Mic from Reading -‐ Berkshire, United Kingdom (Hunter Valley, NSW -‐ Australia) [CC BY 2.0 (
hGp://crea)vecommons.org/licenses/by/2.0 )], via Wikimedia Commons
n  Photo by CEphoto, Uwe Aranas / CC-‐BY-‐SA-‐3.0
hGps://commons.wikimedia.org/wiki/File:Kindle-‐Reader-‐Inside-‐view-‐01.jpg
n  By NotFromUtrecht (Own work) [GFDL (hGp://www.gnu.org/copylet/fdl.html) or CC BY-‐SA 3.0
(hGp://crea)vecommons.org/licenses/by-‐sa/3.0)], via Wikimedia Commons
n  By Greg Hume (Own work) [CC BY-‐SA 3.0 (hGp://crea)vecommons.org/licenses/by-‐sa/3.0)], via
Wikimedia Commons
n  By Plateotheday (Own work) [CC BY 3.0 (hGp://crea)vecommons.org/licenses/by/3.0)], via
Wikimedia Commons
43

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CTL.

SC2x -Supply Chain Design

Introduc)on to Material and

MIT Center for

Vendor Procurement Production Marketing Customer

MRP MRP MRP MPS DRP DRP DRP

Material Requirements Planning

DRP RDC RDC

Retail Retail Retail Retail

While end item demand is independent, the

Multiple versus Single Level BOMs.

Frame Front Wheel Saddle Rear Wheel Handlebars

Fork Rim Shaft Rim Bar

Product Tree Parent Pedal Sprocket

Frame Front Wheel Saddle Rear Wheel Handlebars

Wheel (2) Crank Assembly (1) Level 1

Spoke (86) Sprocket (1)

How should I order

w Independent opera)ons

• Explore diﬀerent Ways to Coordinate

Leadtime between Due In and POR

Output from End Item Model

Simple MRP logic is used to coordinate.

Ordering is now optimized for the

Component Manufacturer takes EI output

Method Component End Item Total

Some Ques)ons to Ponder:

DRP RDC RDC

Retail Retail Retail Retail

"DRP is simply the applica)on of the MRP principles

Regional Warehouse 1 Regional Warehouse 2 Regional Warehouse 3

Retailer A Retailer D Retailer G

The DRP Plan

Gross Rqmt = Period Usage + SS Begin Inv

Period Usage 100 20 50 30 100 0 100 0

Gross Rqmt 100 20 50 30 100 0 100 0

Begin Inv 150 50 30 180 150 50 50 150

Plan Rcpt 0 0 200 0 0 0 200 0

End Inv 150 50 30 180 150 50 50 150 150

POR 200 200

The DRP Plan

Gross Rqmt = Period Usage + SS Begin Inv

DRP RDC RDC

Retail Retail Retail Retail

MIT Center for

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w  Independent opera)ons

•  Explore diﬀerent Ways to Coordinate