OM ASSIGNMENT - 4

Material Requirements Planning (MRP):

MRP is a planning tool specifically for assembly operations. The goal is for each manufacturing
unit to tell its suppliers what parts it needs and when they need them. The supplier may be an
upstream process within the factory, or it may be an external supplier. Together with MRP II, it
may be the most widely used planning and scheduling tool in the world. MRP was created to
solve "dependency on-demand" to determine how many specific components are needed while
knowing the finished products. Advances in computer hardware have made computing possible.

Master production plan:

The process starts at the top level with a master production plan (MPS). This is a combination of
known demand, forecast, and finished product inventory. The phasing of the market may reflect
the responsiveness of the factory. The rest of the timetable comes from MPS. The two critical
considerations for setting up MPS are the size of the " period" and the "planning range." The
"period" is the unit of time for constructing the schedule, usually daily or weekly. "Planning
scope" refers to how far ahead to plan, depending on how far ahead of the demand and the lead
time of the entire operation. There are three different steps in preparing an MRP plan:

 exploding
 netting
 offsetting.

Exploding:
Explosion uses a bill of materials (BOM). This lists how many components are required for each
project (parts, sub-components, final components, finished products). Therefore, a car needs five
wheels, including spare wheels. The BOM is characterized by the number of levels involved and
follows the structure of assembly and subassembly. The first level is represented by MPS and is
"decomposed" to the last group. Therefore, break down a given number of finished products to
see how many items are needed in the final assembly stage.
Netting:
The next step is "net calculation", that is, subtracting any existing inventory from the total
demand determined by the explosion to arrive at the quantity of each item required to
manufacture the required finished product.

Offsetting:
The last step is "offset". This determines when to start manufacturing to provide finished
products when needed. For this reason, a "lead time" must be assumed for the operation. This is
the expected manufacturing time. Repeat the entire process for the next level in the BOM until
you reach the bottom. These will provide requirements and timing for external suppliers.

 When constructing the MRP plan, there are three essential assumptions:
 First, and perhaps most importantly, there is enough available capacity. For this reason,
MRP is sometimes referred to as unlimited capacity scheduling.
 The second is that the lead time is known or can be estimated in advance.
 The third is that the date the order is required can be used as the starting date to develop
the schedule.

Example:
Suppose you need to produce 100 units of product A eight weeks from now, where product A
requires one unit of product B and two units of product C, while product C requires one unit of
product D and two units of product E. How many units of each type do you need? In this
example it is easy to compute the requirements of each item to produce 100 units of product A:
Req(B) = 100, Req(C) = 200, Req(D) = 200, Req(E) = 400.

Suppose further that the lead times for the products are as follows: Product A, four weeks,
product B three weeks, product C two weeks, products D and E one week each. Since the
production lead-time for product A is four weeks, we must have products B and C available at
the end of week four. Since product B has a lead time of three weeks, we need to release the
production of product B by the end of the first week. Similarly, product C must be removed for
exhibition at the end of week two, while products D and E must be released for production at the
end of week one.
A material requirements plan has been developed for product A based on the product structure
and the lead-time needed to obtain each component. Planned order releases of a parent item are
used to determine gross requirements for its component items. Scheduled order release dates are
obtained by offsetting the lead times. The computations and steps required in the MRP process
are not complicated. They involve only simple arithmetic. However, the bill-of-materials
explosion must be done with care. What may get complicated is the product structure,
particularly when a given component is used in different stages of producing a finished item.

What do you mean by Lot Sizing Rules?

The lot size refers to the quantity of an item ordered for delivery on a specific date or
manufactured in a single production run. In other words, lot size refers to the total amount of a
product called for manufacturing. In financial markets, lot size is a measure or quantity
increment suitable to or précised by the party offering to buy or sell it. A simple example of lot
size is: when we buy a pack of six chocolates, it refers to purchasing a single lot of chocolate.

1. Net demand data is subject to batch size requirements in MRP.

2. Batch adjustment is a method of converting requirements into a series of
replenishment/purchase orders.
3. The size of the plot is generally considered locally; that is, only in terms of one part, not its
parts.
If the net demand is directly converted into planned orders, it will result in manufacturing
component planning and procurement planning not considering machine setup costs or ordering
costs. In other words, according to the size of the selected planning period, formulating
requirements on a period-by-period basis, also known as a batch-by-batch policy, will reduce the
overall inventory cost but may increase the price due to excessive setup and ordering activities in
small batches.