Essential Overview

ADVANCED MRP WORKSHOP

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Part 1 : Introduction to Operation Management

• Introduction & definition of operation management.

• Operation Management process and decisions.
• Organizations structure and types.
• Organizations functions.
• Operating Environment.
• Introduction to strategy.
• Productivity.

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 Introduction to Operation Management
• Every thing we use during our daily life are comes from an organization used management to manage the
process required to deliver this thing to you.

• This thing you use can be a goods or a service.

Management is defined as

• A set of activities directed at the efficient and effective utilization of resources in the pursuit of one or more
goals. www.planning-go.com
 Introduction to Operation Management
The goods and services

BASIS FOR COMPARISON GOODS SERVICES

Goods are the material items that can be seen, touched Services are amenities, facilities, benefits or help provided
Meaning
or felt and are ready for sale to the customers. by other people.

Nature
Tangible Intangible

Transfer of ownership Yes No

Evaluation
Very simple and easy Complicated

Return Goods can be returned. Services cannot be returned back once they are provided.

Storage Goods can be stored for use in future or multiple use. Services cannot be stored.

Production is the creation of goods and services.

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 Introduction to Operation Management
The Goods–Services Continuum

Pure Core Core Pure

Goods Goods Services Services

Goods Services

Hotels University
Food products Automobiles Airlines Medical
Chemicals Data storage system Internet Investment
Mining

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 Introduction to Operation Management
Some Types of Manufacturing Industries
• The International Standard Industrial Classification of All Economic Activities is a United Nations industry classification
system.

ISIC Code Type

31 Food, Beverages, tobacco, etc.
32 Textile, leathers, etc. Production Manufacturing

33 Wood and Wooden products A process of converting A process in which raw material
Concept inputs into outputs.
34 Paper and printing is used to generate output.

Compulsory resources Men Men and Machine

235 Chemical and petroleum
Form of input Tangible and Intangible Tangible
36 Ceramics and glasses
37 Basics Metals Form of Output Goods and Services Goods only

38 Cars and machines

39 Other products
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 Introduction to Operation Management
What is Operation Management..
o Operations can be defined as a transformation system (or process) that converts inputs into outputs.

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 Introduction to Operation Management
How Operation Management work?
Organizations that are successful
strive have to identify the value
offered to the customer

Inputs Process Output

Deployment And
Materials Production Goods understanding the decision
used for production and
Labor Transportation Service delivery the goods or services.

Facility Storage

Capital, etc.. Inspection

Decisions impact on the
performance of the cycle.

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 Introduction to Operation Management
What is the value ?

• All organization thrive by producing and delivering a goods or a service deemed to be a value to customers.

• Value is the tangible and intangible benefits that the customers is willing to pay for it.

Cash help the organization to thrive

www.planning-go.com Organization offer the value to the customer

 Introduction to Operation Management
What is Operation Management include ? –Operation Management decisions

Product

Maintenance Quality

Scheduling Process

Operation
Management

Inventory Location

Supply Chain Layout

HR-Work
Design

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 Introduction to Operation Management
Who are the operation managers ? Organizational Chart
• Plant Manager who is in charge of the factory. • A graphic representation of the structure of an organization showing
the relationships of the positions or jobs within it.

• Production and Inventory Control Managers.

• Quality Managers…etc.

• And lines supervisors are also operation managers.

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 Introduction to Operation Management
Why We Study Operation Management ?
1. Operation Management one of 3 basic functions at the organizations.
2. Study how goods and service produced and improve the process.
3. Understand what Operation Managers do.
4. Operation Management is a costly part of the organization.
The Organizations types..
Manufacturing Organizations
• Organizations that primarily produce a tangible product

Service Organizations

• Organizations that primarily produce a intangible product like Idea, information, etc.

Quasi-Manufacturing Organizations
• The type of process technology used in service industries in which there is high capital investment and relatively low customer contact, e.g.
postal services. www.planning-go.com
 Introduction to Operation Management
The organization functions

Functions in the organization

Sales and Marketing

Operation Management
o The core of the organization and the operation management is to add
value to the customers.
Finance www.planning-go.com
 Introduction to Operation Management
Organization chart for a manufacturing facility
Operation
Manufacturing Facilities Industrial Engineering
• Production and Inventory Control
Organization • Scheduling, Materials Control
• Quality assurance and control • Efficient use of resource( Machines, etc..)
• Supply Chain Management

Operation Finance/Account
Disbursements/accounting Funds Managements
• Accounts receivable • Money Market
• Accounts payable • International exchange
Finance/Account • General ledger
Marketing
Marketing
Marketing • Sales promotion
• Advertising
• Sales
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• Market Research
 Introduction to Operation Management
The organization aspects
Operation
Management
Decisions Functions
process (Supply
Chain)
Process Planning
Marketing
Quality Sourcing

Capacity Making
Aspects of operation management
Inventory Delivering
Finance
Supply Chain Returning
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 Introduction to Operation Management
The decision making framework for operation management

The Value Added

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 Introduction to Operation Management
Operating Environment
• Operations management works in a complex environment affected by many factors.

Government

Quality Economy

Factors affect
Operation
Management

Competition Customer

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 Introduction to Operation Management
Why Some Organizations Fail
Organizations fail, or perform poorly, for a variety of reasons.

Being aware of those reasons can help

1. Neglecting operations strategy. managers avoid making similar mistakes.

2. Failing to take advantage of strengths and opportunities, and/or failing

to recognize competitive threats. • Customer Services is the key to successfully
competing. Two basic issues must be
addressed
3. Putting too much emphasis on short-term financial performance at the
expense of research and development. 1. First: What do the customers want?

2. Second: What is the best way to satisfy

4. Failing to establish good internal communications and cooperation those wants?
among different functional areas.

5. Failing to consider customer wants and needs.

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 Introduction to Operation Management
How Company Operation Strategy work

Vision
The vision
Is an idyllic view of a future possibility, relative to the company’s work in the world.

The mission Mission

Is where this business will do its part in making the vision a reality.

The goal Goals

Addresses the how of achieving the mission.

The strategy Strategy

To achieve this goal.

The Tactics Tactics

Are often broken down by category.

The Action Plan Action Plan (tasks)

Is what steps must be taken to support the tactics. www.planning-go.com
 Introduction to Operation Management
Example

Vision: A vibrant rural economy driven by new and growing businesses.

Mission: To create new businesses and help existing businesses expand.

Strategy: Use local leaders with business development skills.

More
Details Goal: Recruit local leaders interested and experienced in business reaction.

Objective: Create a list of twenty individuals by February 1

Action Plan:
1. Form a committee to recruit local leaders.
2. Identify forty leaders in the area.
3. List their qualifications.
4. Contact them individually with the expectation that half of them will participate.
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 Introduction to Operation Management
Measuring the KPIs
• KPI is a term stand for Key performance of indicator.

Metrics to Measure Performance

Strategic

Tactical

Operational

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 Introduction to Operation Management
Organizations achieve it’s missions in 3 ways :

o This mean that the Operation Managers are called on to deliver goods and
services that are :

Differentiation 1. The best (Differentiation),

2. Cheaper (Cost leadership)

Cost Leadership
3. And to be response.

Response

o Operation Managers translate these Strategic concepts into tangible tasks to be accomplished.
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 Introduction to Operation Management
Achieving Competitive advantage through Operations.
o Each of three strategies that used to achieve the mission, provide a competitive advantage for the Operation Managers.
o The idea is to create customer value in an efficient and sustainable way.

Cost
Differentiation Response
Leadership

o Competitive Advantage : The creation of a unique advantage over competitors.

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 Productivity Analysis
The Productivity Challenge What is Productivity ?
• Creation of goods and service require changing • Productivity is the ratio of outputs ( may be goods or
resources into goods and services. services) divided by one or more inputs (may be labor,
materials, capital, etc..).
• The More efficiently we make this change, the
more productive we are and the more value added 𝑂𝑢𝑡𝑝𝑢𝑡
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
is provided. 𝐼𝑛𝑝𝑢𝑡

Productivity is an important factor because it

determine our standard of living.
Work More
Efficiency productivity

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 Productivity Analysis
• Because Productivity measure our living standard, we have
to improve it. Backing to the productivity equation..
• Improving Productivity means improving efficiency.
𝑂𝑢𝑡𝑝𝑢𝑡
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
How we can improve productivity? 𝐼𝑛𝑝𝑢𝑡

• Productivity is a ratio of comparison within a period of time.

Increasing output

• All the inputs and outputs are measured in some common

Reduce inputs unit like money value.

• Efficiency Improving productivity should be done in an

effective way. • Productivity indicates a combined effect of resource
utilization like efficiency and performance like effectiveness.

✓ Efficiency means doing the job well.

• The combined effect of efficiency and effectiveness is

✓ Effective means doing the right thing.
utilized in defining a Productivity Index
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 Productivity Analysis
Productivity Index
• Productivity Index is used as a basis of measurement.

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑖𝑛𝑑𝑒𝑥 =
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑏𝑎𝑠𝑒 𝑌𝑒𝑎𝑟

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Part 2 : Supply Chain Management Overview

• Introduction to Supply Chain.

• Supply Chain vs Operation Management.
• Supply Chain vs Supply Chain Management.
• Balancing the demand & Supply Overview.
• Introduction to Marketing (Demand side)
• Overview of Supply Side

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 Introduction to Supply Chain Management
• The operating environment for a supply chain requires that the supply be able to respond changing customer expectations,
government regulations, economic conditions, and global and domestic competitors.

➢ Why this summary mention this statement “the supply be able to respond changing …..”

End User
Supplier Manufacturer
Customer

• What is the meaning of the value ?

• What is the value added to the manufacturer ?
• What is the value added to the End user customer ?
• Who is the core of the supply chain ?
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 Introduction to Supply Chain Management
Supply Chain Definition

End User
Supplier Manufacturer
Customer

• The global network used to deliver products and services from raw materials to end customers through an engineered flow
of information, physical distribution, and cash.

• Why Supply Chain is a global network ?

Planning-go website

• What are the meaning of the engineered flow ?

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 Introduction to Supply Chain Management
Supply Chain Definition

End User
Supplier Manufacturer
Customer

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 Introduction to Supply Chain Management
Supply Chain Definition

Tier 1 Tier 2 Tier 3

Supplier
Supplier
Supplier
Supplier
Supplier Supplier
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 Introduction to Supply Chain Management
Supply Chain Flows
The Materials and Services flow

The Cash Flow

The Information Flow

• Why Information flow flows in both direction ?

• What is the most important flows ? And why ?
• Why this flow should be an engineered one ? And how?
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 Introduction to Supply Chain Management
Supply Chain Flows

End User
Supplier Manufacturer
Customer

• The global network used to deliver products and services from raw materials to end customers through an engineered flow
of information, physical distribution, and cash.

The meaning of Engineered Flow

Engineering flow is to prevent the flows to happen by luck or chance.

How we can achieve this engineered flow.

The answer is to manage it.

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 Introduction to Supply Chain Management
Supply Chain strength

End User
Supplier Manufacturer
Customer

The strength of any supply chain = the strength of the weakest point in the chain

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 Introduction to Supply Chain Management
Supply Chain Management Definition
Supply Chain Management definition

• The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value,
building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring
performance globally.

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 Introduction to Supply Chain Management
Supply Chain Evaluation & Stages
Stages of
evaluation
Multiple dysfunction

Semi functional
enterprise

Integrated
enterprise

Extended enterprise

Orchestrated supply
chain
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 Introduction to Supply Chain Management
Supply Chain Evaluation & Stages
Stages of
evaluation
Multiple dysfunction

Semi functional
enterprise

Integrated
enterprise

Extended enterprise

Orchestrated supply
chain
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 Introduction to Supply Chain Management
Supply Chain Evaluation & Stages
Stages of
evaluation
Multiple dysfunction

Semi functional
enterprise

Integrated
enterprise

Extended enterprise

Orchestrated supply
chain
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 Introduction to Supply Chain Management
Supply Chain Evaluation & Stages
Stages of
evaluation
Multiple dysfunction

Semi functional
enterprise

Integrated
enterprise

Extended enterprise

Orchestrated supply
chain
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 Introduction to Supply Chain Management
Supply Chain Evaluation & Stages
Stages of
evaluation
Multiple dysfunction

Semi functional
enterprise

Integrated
enterprise

Extended enterprise

Orchestrated supply
chain
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 Introduction to Supply Chain Management
The Challenges
Supply Chain Management definition
• The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value,
building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring
performance globally.

Does it easy to achieve

Laws Competitors

Economic Customer
Condition The expectations
Supply
Chain
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 Introduction to Supply Chain Management
The Challenges
The most important supply chain value

Demand Supply
Demand Supply

The Target
Demand Supply
Supply Demand Source Source

synchronizing supply with demand

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 Introduction to Supply Chain Management
The Challenges
The most important supply chain value

Demand Supply

Understand the
sources of supply &
Demand Supply
demand Source Source

synchronizing supply with demand

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 Introduction to Supply Chain Management
Balance the demand with supply
Strategic Planning

Demand Side Resource

Priority Planning
Forecasting $ Planning
Sales and Operation Planning
Capacity Planning
Resource Planning
(Production Planning) (RP)
Product Family

Units Rough-Cut Capacity

Demand Management Master Production Scheduling Planning
(RCCP)

Capacity Requirement
MRP-Materials Requirement
Planning
Planning
DRP- Confirmed Orders (CRP)

Purchasing and Control

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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side

What is the demand Planning

• Demand planning is a supply chain management process of forecasting, or predicting, the demand for products to ensure
they can be delivered and satisfy customers

For best demand planning & Management we have to study the market.

The Simplest definition of Marketing is

• Marketing is the delivery of customer satisfaction at a profit.

• Marketing is about all the customers needs and requirements.

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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Studying the market & customers
• Marketing mix—The set of controllable tactical marketing tools – product, price, place and promotion – that the firm blends
to produce the response it wants in the target market

Product Promotion Price Place

Variety List Price Channels
Advertising
Quality
Discounts Coverage
Design
Promotions Allowances Locations
Features
Payment Period Inventory
Brand
Personal selling
Pancaking Credit terms Transport

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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Studying the market & customers
• The marketing mix constitutes the company’s tactical toolkit for establishing strong positioning in target markets.

The four Ps represent the sellers’ view of the marketing tools Companies should view the four Ps as the customer’s
available for influencing buyers. four Cs

4 Ps 4 Cs
Product Customer needs and wants

Price Cost to the customer

Convenience
Place
Communication
Promotion
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 Introduction to Supply Chain Management
Marketing Environment
• The marketing environment consists of a microenvironment and a macroenvironment.

The microenvironment consists of the forces close The macroenvironment consists of the larger
to the company that affect its ability to serve its societal forces that affect the whole
customers microenvironment

The company Demographic

Suppliers Economic
Marketing channel firms Natural
Customer markets Technological
Competitors Political
Publics. Cultural forces.

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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Segmentation

Geographic Demographic Psychographic Behavioral

segmentation segmentation segmentation segmentation
Age Purchase occasion
Region
Gender Social class
Benefits sought
Family size
Country size User status
Family life cycle
Income Usage rate
City size Lifestyle
Occupation Loyalty status
Education
Density Readiness state
Religion
Attitude towards
Race Personality
Climate
Nationality Product

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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Marketing Impact on Demand
bullwhip effect

• An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in
the supply chain.

https://www.planning-go.com/main-page/discussion-platform
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 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Demand estimation

Demand is measured and forecast on many levels

o Demand might be measured for six different product levels

• (product item, product form, product line, company sales,

90 types of
industry sales and total sales)
demand
o Five different space levels
measurement
• (customer, territory, country, region, world)

o Three different time levels 90 = 6 ∗ 5 ∗ 3

• (short range, medium range and long range). 51
 Introduction to Supply Chain Management
Balance the demand with supply- The Demand Side
Demand estimation
90 types of demand measurement
Each demand measure serves a specific purpose.

• A company might forecast short-run total demand

for a product as a basis for ordering raw materials,
planning production and borrowing cash.

• Or it might forecast long-run regional demand for a

big product line as a basis for designing a market
expansion strategy

52
 Introduction to Supply Chain Management
Balance the demand with supply- The Supply Side
Production Environments

1. Engineer-to-order (ETO)
2. Make-to-order (MTO)
3. Assemble-to-order (ATO)
4. Make-to-stock (MTS)

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 Introduction to Supply Chain Management
Balance the demand with supply- The Supply Side
Production Strategies

Chase (Demand Matching)

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 Introduction to Supply Chain Management
Balance the demand with supply- The Supply Side
Production Strategies
Level (Production Leveling at Average Level)

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 Introduction to Supply Chain Management
Balance the demand with supply- The Supply Side
Production Strategies
Subcontracting (Minimum-Level Strategy with Supplemental Subcontracting)

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 Introduction to Supply Chain Management
Balance the demand with supply- The Supply Side
Production Strategies
Hybrid

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 Introduction to Supply Chain Management
Measuring Performance

Strategic-Tier I

• Strategic metrics are the highest level of metrics and examine the state of the business
at a macro view.
Tactical- Tier II

Operational-
• The measurements focus on Annual Business Plan initiatives on the financial and
overall “health” of the organization and the business. Tier III

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 Introduction to Supply Chain Management
Measuring Performance

Strategic-Tier I
• Tactical metrics are used to provide more micro view of the business for a functional
area.

• Used for daily or weekly decision making and managing real time performances to the Tactical- Tier II
business.

• The results of these daily/weekly measures affect the overall result of the Tier I Operational-
metrics.
Tier III

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 Introduction to Supply Chain Management
Measuring Performance

Strategic-Tier I

• Operational metrics are used by floor personnel on a daily or weekly basis to manage Tactical- Tier II
real time occurrences to the business.

• These measures are a snapshot of a sub-process within a functional area. Operational-

Tier III

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 Introduction to Supply Chain Management
Measuring Performance- Example

https://www.planning-go.com/main-page/discussion-
platform#h.skcb1ov9bfvt

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 Introduction to Supply Chain Management
Before the KPIs

The KPIs should be SMART

Why it should be smart ?

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 Summary
What is the difference between Operation & the Supply Chain Management

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Part 3 : Materials Requirement Planning

• MRP in Modern world

• Supply Chain vs Operation Management.
• Supply Chain vs Supply Chain Management.
• Balancing the demand & Supply Overview.
• Introduction to Marketing (Demand side)
• Overview of Supply Side

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MRP-Material Requirements Planning

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 Warm up
Strategic Planning

Demand Side Resource

Priority Planning
Forecasting $ Planning
Sales and Operation Planning
Capacity Planning
Resource Planning
(Production Planning) (RP)
Product Family

Units Rough-Cut Capacity

Demand Management Master Production Scheduling Planning
(RCCP)

Capacity Requirement
MRP-Materials
MRP-Materials Requirement
Requirement
Planning
Planning
Planning
DRP- Confirmed Orders (CRP)

Purchasing and Control

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 Warm up
MRP-Materials Requirement
Planning

Execution Control
Purchasing Scheduling

Receiving Shop Order Loading

Inspection Dispatch

Store Shop Floor Control

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 Warm up
• This planning approach is still the standard across the globe for determining what to buy and make, how much to buy and
make, and when to buy and make it

The acronym MRP is used in Two different but related contents, these different but related contents are :-

Enterprise Resource Planning

MRP II is an extension of (MRP)-(Closed loop) ERP

MRP II
Material Requirement Planning

MRP I

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 Warm up

MRP I- Materials MRP II-

ERP-Enterprise
Requirement Manufacturing
Resource Planning.
Planning Resource Planning.
Machines Capacity The Core Finance ( AP, AR,…).
Master Production Schedule. Scheduling.

Supply Chain Management

Quality Assurance
Inventory Records Marketing & Sales
Demand Forecasting
Human Resources

Bill of Materials
General Accounting Project Management

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 Warm up
History of Evaluation

1920 s Inventory Closed Loop

BOMP MRP MRP II ERP 1996 APS
Management MRP

Throughout this entire evolution, the core MRP calculation kernel stayed the same.

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 Warm up
MRP fundamentally is a very big calculator using the data

Data about Data about

what you have what you need
in order to
calculate what
you need to go
get

Data about
when you need
the
requirements.

This has grown from the first

ability to track inventory.
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 MRP in the Modern World
• Manufacturing is the conversion of low-value materials to higher value products

Higher value Products (Value)

Product Materials

Low Value cost (Optimized)

These must have value at least equal to their price in meeting
customers’ needs or desires
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 MRP in the Modern World
• The essence of manufacturing is flow of materials from suppliers through plants to customers and of information to all parties
about what was planned, what has happened, and what should happen next

Supplier Manufacturing Customer

Materials Flows

Information Flow

THE FIRST LAW OF MANUFACTURING

All benefits will be directly related to the speed of flow of materials

and information.
The obvious principle that is related to the Speed of flow is Time
• Time is the most precious resource employed in the manufacturing process and the ultimate constraint.
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 MRP in the Modern World
THE VALUE OF TIME

Supplier Manufacturing Customer

Equal amounts are available to
everyone, but time moves
Business Model 1
relentlessly
Supplier Manufacturing Customer
• Time cannot be stored, extended, or recycled, and wealth can
Business Model 2 buy no more.

• Wasting time causes irretrievable loss.

Supplier Manufacturing Customer

Business Model 3
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 MRP in the Modern World
Simple, universal logic underlies all manufacturing and can be represented by some simple questions:

What is to be made?

How many, and when are they needed?

What resources are required to do this?

Conflict and Variation How should those resources be configured and deployed?

Which are already available?

Which others will be available in time?

What more will be needed, and when?

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 MRP in the Modern World
Four sources of variation

Management Variability

Demand Side
Supply Side
Operation Variability

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 MRP in the Modern World
Four sources of variation

Management Variability
Demand Side Supply Side
Operation Variability
Supply variability is measured by disruptions in the supply network or deviation from requested dates and/or promised dates
for supply order receipts.

demand uncertainty: The uncertainty or variability in demand as measured by the standard deviation, mean absolute
deviation (MAD), or variance of forecast errors

Operation variability results in a process that may be within calculated control limits statistically but still varying between
those limits.

Management Variability is the human element. It is a direct result of decisions made within the company
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 MRP in the Modern World
Effect of Variation
Effect of Variation on Operations and Supply Chains

MRP nervousness is an effect where the future order forecasts, given to suppliers
so that they may plan production and organize their affairs, exhibits extreme
period-to-period variability.

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 MRP in the Modern World
Effect of Variation
Effect of Variation on Demand Side

bullwhip effect

• An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in
the supply chain.

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 MRP in the Modern World
Effect of Variation
How to stop nervousness and the bullwhip effect

Decoupling is the only way to stop nervousness and the bullwhip effect
is to stop variation

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 MRP in the Modern World
How to stop nervousness and the bullwhip effect

Decoupling and Decoupling Points

• Decoupling : Creating independence between supply and use of material.

• Decoupling points: The locations in the product structure or distribution network where inventory is placed to create
independence between processes or entities.

• Selection of decoupling points is a strategic decision that determines customer lead times and inventory investment

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 MRP in the Modern World
BUFFERING

One form of decoupling is buffering

Stock Time
Buffers Buffers

Capacity
forms of buffering Buffers
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 MRP in the Modern World
BUFFERING

One form of decoupling is buffering

• Capacity cushion: extra capacity that is added to a system after capacity for expected
demand is calculated. .‫السعة اإلضافية التي تتم إضافتها إلى النظام بعد احتساب سعة الطلب المتوقع‬
Stock Time
Buffers Buffers
• Protective capacity: The resource capacity needed to protect system throughput.
.‫قدرة الموارد الالزمة لحماية إنتاجية النظام‬

Capacity
Buffers • Surge capacity: The ability to meet sudden, unexpected increases in demand by
expanding production with existing personnel and equipment. ‫القدرة على تلبية الزيادات‬
.‫المفاجئة وغير المتوقعة في الطلب من خالل توسيع اإلنتاج بالموظفين والمعدات الحالية‬
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 MRP in the Modern World
BUFFERING

One form of decoupling is buffering

Stock Time
Buffers Buffers • The time buffer represents the additional lead time allowed, beyond the required
setup and processing times, for materials to flow between two specified points in
the product flow.
Capacity
Buffers

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 MRP in the Modern World
BUFFERING

One form of decoupling is buffering

• Stock buffers are quantities of inventory or stock that are designed to decouple demand
from supply.

• Safety stock: a quantity of stock planned to be in inventory to protect against

Stock Time fluctuations in demand or supply
Buffers Buffers • Min-Max System: A type of order point replenishment system where the “min”
(minimum) is the order point and the “max” (maximum) is the “order up to” inventory
level.
Capacity
Buffers • Supermarket: Stores of in-process inventory used where the process cannot produce a
continuous flow.

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 Introduction to inventory
Warm up
• All organizations and individuals hold stocks.
• These are the stores of materials they keep until needed.

• Whenever an organization has materials that it does not use immediately, it puts them into stock.

Stock

Stock
Wholesaler The Shop Customer
 Introduction to inventory
Warm up
o So, we usually hear about the Stock, Inventory, Item and Unit.

The Stocks

• Stock consists of all the goods and materials that are stored by an organization.
• It is a store of items that is kept for future use.

The Inventory

• An inventory is a list of the items held in stock.

The Item

• An item is a distinct product that is kept in stock.

• it is one entry in the inventory
What is the difference ?
The Unit

• A unit is the standard size or quantity of an item.

 Introduction to inventory
Warm up
o So, we usually hear about the Stock, Inventory, Item and Unit.
• Suppose ABC company produce TVs, Laptops and Mobile phones.
• Suppose each 1 product require the following materials and tools.
The Final Product
Materials and tools
TV Laptops Mobile Phones
A Used Non Used Used
B Non Used Non Used Used
C Used Used Used
D Non Used Used Used
• Suppose ABC company Packaging policy is using paper carton .
What is the difference ? Product Number of product in each carton
TV 1
Laptops 5
Mobile Phones 20
 Introduction to inventory
Warm up
o So, we usually hear about the Stock, Inventory, Item and Unit.
Depending on ABC company information, how we can define the Stock, Inventory, items and
units.

Stock Inventory Item Unit

TVs One TV
One carton of TV
All products Laptops One Laptop

Mobiles One Mobile

Materials and One of Material and

One carton of Laptop
Components A Component A
Materials and One of Material and
Components B Component B
What is the difference ?
All materials and tools Materials and One of Material and
Components C Component C
One carton of Mobile
Materials and One of Material and
Components D Component D
 Introduction to inventory
Warm up
o So, we usually hear about the Stock, Inventory, Item and Unit.

• Suppose ABC company have a variety in colors and sizes of its products are packed in each
carton unit

TVs Laptop Mobil

Colors Sizes (Inch) Colors Sizes Colors Sizes
• Black • Large • Black • Large • Black • Large
• Green • Small • Yellow • Green • Small
• White • Medium • Grey • Small • Orange • Medium

How could we define these

• Medium Black TV, o We called them as the Stock Keeping units (SKU)
What is the difference ? • White Large TV,
• Large Gray Laptop,
• Medium Orange Mobil, o A stock keeping unit is a unique identifier for an item
• Etc.….. sold by the company
 Introduction to inventory
Warm up
The nature of the Stock Cycle
Customer Supplier
(Demand) (Supply) Customer Supplier
(Demand) (Supply)

Inventory Management
Customer Item
orders supplied

Who is the customer ?, and who is the Supplier ?.

• The customer is anyone or anything that generate the demand.

• A supplier is anyone or anything that replenishes or adds to stock to balance it’s supply with demand.
 Introduction to inventory
o Not only each planning level, but also during each process done to create our product, we have to consider and follow up
the inventory.

Cycle time

95% 5%

Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
 Introduction to inventory
So, Why should we have the inventory ?

• The only good reason for carrying inventory beyond current needs is if it costs less than to not carry it.

• Inventory enables the company to operate with different production rates and batch sizes throughout the supply, production,
and distribution system.

Inventory decouples

Demand from Supply

Demand
Customer Demand from Finished Goods
Finished goods from components availability
Output of one operation from output of preceding operation
Supply Materials to begin produced from suppliers of materials
 Introduction to inventory
Approaches to inventory control

Good inventory control require answering three

fundamental questions:

Inventory
Control System

What When
How
items should Dependent Independent
much Demand
Methods
Demand
Methods
should we
should
we place
we MRP(Materials
JIT (Just in Fixed Order
keep in an Requirement
Planning)
Time) Quantity.
Periodic Review

order?
stock? order?
 Introduction to inventory
Approaches to inventory control
And, Inventory Management is issued in 2 levels
Item Inventory Management

Establish decision rules about individual inventory items

Inventory (SKU)
Management

Aggregate Inventory Management

Item Aggregate Establish decision rules related to the aggregate inventory.

Inventory Inventory
Management Management
 Introduction to inventory
Inventory Costs- Types of cost
All stocks incur costs.
What are the types of inventory costs?
The
Capacity The Unit
Related Cost
Cost

The The
Shortage Ordering
Cost Cost

The
Holding
Cost
 Nature of Demand and Supply
The Nature of Demand

Independent demand :
• The Independent Demand occurs(Forecasted) by the request of
customers for products.
• usually used for production planning/MPS and is not used for
MRP.
dependent demand :
• The dependent Demand is calculated according to the independent
demand.

• Usually used for MRP (How much is required).

Demand
is the number of units of a specific product that its consumers are
willing to purchase at each price
 Nature of Demand and Supply
Push vs Pull Strategy
Push Pull

• Production happens based on demand forecast. • Demand-Driven rather than based on predictions
Logic
Factory Materials Warehouse Factory Materials Customer

How it work Based on forecasting Based on customer orders

MRP Link Use MRP Use Lean & JIT

• What do you know about Lean Manufacturing ?

• What is the meaning of demand driven ?
 Types of Work
The types of work and the relationships

Planned Work Unplanned Work

Dependent Demand Independent Demand

Material Requirement
Planning Inventory Control

ATP , MPS , etc.… Tools like Safety Stock,

Reorder Point ,etc.…
 Inventory in a Manufacturing Environment
ORDER-POINT VERSUS MRP SYSTEMS

Reorder Point MRP-Materials Requirement Planning

Deals with Parts Product
Looks to the Past Future
Uses (Logic) Average usages or consumption Batches
Replanning No Yes
Activated for an order Once Periodically
Show future orders None All in horizon

• Which is better using MRP logic or using ROP logic ?

ROP MRP JIT

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 Inventory Data
TIME PHASING
• Time phasing means adding the dimension of time to inventory status data by recording and storing the information according
to the specific dates of planning at the right quantities.

Inventory-status information (Data)

Requirement
(Demand)
Availability 𝑿=𝑨+𝑩−𝑪
A= Quantity on hand.
Inventory- B = Quantity on Orders.
States
Data
C = Quantity Required.
X = Quantity available for future
Availability
demand.

• The difference between the quantity required and the sum of the on-hand and on-order quantities.

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 Inventory Data
TIME PHASING
𝑿=𝑨+𝑩−𝑪
A= Quantity on hand.
Availability Options B = Quantity on Orders.
C = Quantity Required.
Data Option 1 Option 2
X = Quantity available for future
On Hand 30 30
demand.
On Order 50 25
Required 65 65
Available +15 -10

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 Processing Logic
INVENTORY STATUS
Inventory status is tracked to answer the following questions :

What do we What do we What do we

have ? need ? do ?

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 Processing Logic
INVENTORY STATUS
A= Quantity on hand.
B = Quantity on Orders.
𝑿=𝑨+𝑩−𝑪 C = Quantity Required.
X = Quantity available for future demand.

Data Units Calculation

On Hand 100
On Order 120
Required orders 200
Qnty available for future demand ?? 100+120-200=20

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 Processing Logic
INVENTORY STATUS
In MRP The classic equation is, expanded to A= Quantity on hand.
B = Quantity on Orders.
𝑿=𝑨+𝑩+𝑫−𝑪 C = Quantity Required.
D =Planned Quantity for future release
X = Quantity available for future demand.
• The MRP system evaluates the status of each inventory item, automatically establishes planned-order coverage, and signals
for consistently correct action.

Inventory elements (related to timing information) The status data can be divided into two categories by type:
• Quantity on hand
• Quantities on order • Inventory data (replenishment)
• Gross requirement quantities • Requirements data
• Net requirement quantities
• Planned-order quantities

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 Processing Logic
INVENTORY STATUS
The three principal functions of MRP are to

Provide data for

Plan and control Plan and replan
capacity requirements
inventories released-order priorities
planning

Order the right part Order with the right due A complete load
date
Order in the right An adequate time span
quantity for visibility of future load

Keep the due date valid

Order at the right time An accurate (valid) load

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 Processing Logic
INVENTORY STATUS

Data Units Note

On Hand 100 Opening Stock
On Order 120 Amounts I will receive to be added to my stock
Required orders 500 Customers orders
Units Shortages 100+120-500= (280) The shortage is 280 unit

The Question is, what is the best method or technique to request these (280) items ?

The answer and the technique should consider cost and the strategy of your work

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 Inventory Data
TIME PHASING
• Time phasing means capturing or developing the information on timing for the best control.

On Hand Balance Week 1 Week 2 Week 3 Week 4

(30 unit)
Open Orders 40 Replenishment Order
Qnty Required 0 20 50 0
Available 30 10 - 40 0

+ -
Value Value
How we can manage it

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 Principles of Materials Requirements Planning
TIME PHASING
Inventory system categories

Demand Component
Data
Forecasted Calculated

Quantity Only Statistical Order Point Lot Size Requirements Planning

Quantity & Timing Time-Phased Order Point Materials Requirements Planning

Statistical order point

• It uses forecasting to determine demand and generally ignores the aspect of specific timing.
• This type of system is an obsolete for purposes of manufacturing inventory management. (Due to new technology
& Computer system).
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 Principles of Materials Requirements Planning
TIME PHASING
Inventory system categories

Demand Component
Data
Forecasted Calculated

Quantity Only Statistical Order Point Lot Size Requirements Planning

Quantity & Timing Time-Phased Order Point Materials Requirements Planning

Time-phased order point

• The modern techniques.

• It is eminently suitable for service parts, finished products in factory stock, and field warehouse items

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 Principles of Materials Requirements Planning
TIME PHASING
Inventory system categories

Demand Component
Data
Forecasted Calculated

Quantity Only Statistical Order Point Lot

LotSize
SizeRequirements
RequirementsPlanning
Planning

Quantity & Timing Time-Phased Order Point Materials Requirements Planning

Lot requirements planning

• Component-item demand is derived from a master production schedule.
• Specific timing is disregarded.

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 Principles of Materials Requirements Planning
TIME PHASING
Inventory system categories

Demand Component
Data
Forecasted Calculated

Quantity Only Statistical Order Point Lot Size Requirements Planning

Quantity & Timing Time-Phased Order Point Materials Requirements Planning

Materials Requirement Planning

• MRP calculates item demand and time-phases all inventory-status data in time increments as fine as the user has specified.

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The Road Map
Demand Component
Data 1. Lot Size Technique.
Forecasted Calculated 2. MRP Structure (Input, Process , Output).
3. The time horizon Logic of MRP.
Quantity Only Lot Size 4. MRP Logic Calculations.
5. The Case study & Item Master creation.
Quantity & Timing MRP

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 1. Lot Size Technique.
2. MRP Structure (Input, Process , Output).
The Road Map 3. The time horizon Logic of MRP.
4. MRP Logic Calculations.
5. The Case study & Item Master creation.

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 Lot Size
• Two categories of costs enter into decisions of how much of an item should be purchased or made.

Carrying
Order Carrying Order Cost
Cost
Cost
Cost
Processing paperwork Obsolescence

How much to Preparing requisitions Deterioration

purchase
decision Purchase orders
Taxes and insurance on
inventory

Storage costs for

Receiving documents for
equipment, space, heat,
purchased materials
light, and people

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 Lot Size
LOT-SIZING TECHNIQUES

Lot Sizes techniques

Demand-
Rate- Discrete lot-sizing techniques
Oriented

Economic
Fixed order Period order Part-period Wagner-
order Lot for lot Fixed-period Least unit Least total
quantity quantity balancing Whitin
quantity (LFL) requirements cost (LUC) cost (LTC)
(FOQ) (POQ) (PPB) algorithm
(EOQ)

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 Lot Size
LOT-SIZING TECHNIQUES

Fixed Order Quantity (FOQ) Demand Rate

• This policy would be applicable to items with ordering cost sufficiently high to rule out Oriented
ordering in net requirements quantities period by period.

Assume Fixed Order Quantity = 60 unit

Fixed Order
Period Quantity
FOQ = 60 Unit
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
(FOQ)
Net Requirements 35 10 0 40 0 20 5 10 30

Planned Order Coverage 60 60 60 Economic

Order
Fixed Qnty will be ordered each time Quantity
• What if is our net requirements during week 1 is (80 units) and the FOQ = 60 units (EOQ)
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 Lot Size
LOT-SIZING TECHNIQUES
Fixed Order Quantity (FOQ) Demand Rate
• What if is our net requirements during week 1 is (80 units) and the FOQ = 60 units Oriented
Assume Fixed Order Quantity = 60 unit

Period Fixed Order

FOQ = 60 Unit
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Quantity
(FOQ)
Net Requirements 80 10 0 40 0 20 5 10 30

Planned Order Coverage 80 60 60

Economic
• It would make little sense to generate two orders of 60 each during week 1. Order
Fixed Qnty will be ordered each time consider the Requirements Quantity
(EOQ)
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 Lot Size
LOT-SIZING TECHNIQUES
Economic Order Quantity (EOQ) Demand Rate
• Economic order quantity (EOQ) is the ideal order quantity a company should purchase to
minimize inventory costs.
Oriented
Formula for Calculating Economic Order Quantity (EOQ)
Fixed Order
2 ∗𝐷∗𝑆 Quantity
𝐸𝑂𝑄 = 𝐻 (FOQ)

D = Demand (Unit, on an annual basis)

S = The Order Cost (per purchase order)
How can we generate this equation ?, what is Economic
the logic ?
H = Holding Cost (Per unit, per year) Order
Quantity
Planning-go video on YouTube
(EOQ)
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 Lot Size
LOT-SIZING TECHNIQUES
Economic Order Quantity (EOQ) Demand Rate
Assume Economic Order Quantity = 58 unit Oriented
Period
EOQ = 58 Unit
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Fixed Order
Quantity
Net Requirements 35 10 0 40 0 20 5 10 30
(FOQ)
Planned Order Coverage 58 58 58

What if is our net requirements during week 1 is (80 units) and the EOQ = 58 units
Economic
Order
• The EOQ is based on an assumption of continuous, steady-rate demand, and it will perform
well only where the actual demand approximates this assumption. Quantity
(EOQ)
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 Lot Size
LOT-SIZING TECHNIQUES
Discrete lot-
Lot for Lot (L4L)
• This technique, sometimes also referred to as discrete ordering, is the simplest and most
sizing
straightforward of all. techniques
• The planned-order quantity always equals the quantity of the net requirements being
covered. Lot for Lot

Fixed Period Requirements

Period
Lot for Lot (L4L)
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Period order quantity (POQ)

Net Requirements 35 10 0 40 0 20 5 10 30
Least unit cost (LUC)

Planned Order Coverage 35 10 40 20 5 10 30

Least total cost (LTC)
Lot for lot may be having the same logic of one of production strategies
What is this strategy ? What is this logic ? What are the other strategies? Part-period balancing (PPB)

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 Lot Size
LOT-SIZING TECHNIQUES
Discrete lot-
Lot for Lot (L4L)
sizing
Lot for Lot (L4L)
Period
techniques
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Lot for Lot
Net Requirements 35 10 0 40 0 20 5 10 30
Fixed Period Requirements
Planned Order Coverage 35 10 40 20 5 10 30

Period order quantity (POQ)

• Lot for Lot is a dynamic technique, it should be recomputed once the net requirement
change.
Least unit cost (LUC)
• Use of this technique minimizes inventory carrying cost. (Why ?)
Least total cost (LTC)
• It is often used for expensive purchased items and for any items, purchased or
manufactured, that have highly discontinuous demand. (Why ?)
Part-period balancing (PPB)

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 Lot Size
LOT-SIZING TECHNIQUES
Fixed Period Requirements Discrete lot-
• Method of stock-replenishment system used to supply “N months” at one time. sizing
techniques
Period
Fixed Period Lot for Lot
Requirements
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Fixed Period Requirements
Net Requirements 35 10 0 40 0 20 5 10 30
Period order quantity (POQ)
Planned Order Coverage 45 40 25 40

Least unit cost (LUC)

• In week 6, we ordered 25 units for the sum requirements of Week 6 and week 7.

• In week 8, we ordered 40 units for the sum requirements of Week 8 and week 9. Least total cost (LTC)

Can we order 65 units at week 6 to cover the net requirements for weeks 6,7,8 and 9
Part-period balancing (PPB)
Before answering read the name of this lot size again.
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 Lot Size
LOT-SIZING TECHNIQUES
Fixed Period Requirements Discrete lot-
• Method of stock-replenishment system used to supply “N months” at one time. sizing
Period
techniques
Fixed Period
Requirements
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Lot for Lot

Net Requirements 35 10 0 40 0 20 5 10 30
Fixed Period Requirements

Planned Order Coverage 45 40 25 40

Period order quantity (POQ)

• In fixed period lot size technique, the supply is determined by the confirmed orders not by
the forecasting.(Why?) Least unit cost (LUC)

The Fixed period to order is 2 weeks… Least total cost (LTC)

• Why we didn’t make any order in week 3 ?

Part-period balancing (PPB)

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 Lot Size
LOT-SIZING TECHNIQUES
Period Order Quantity (POQ) Discrete lot-
• POQ technique, sometimes called Economic Time Cycle. sizing
• The same logic of Fixed-Period quantity except the ordering is interval. techniques
Orders interval calculations
• Annual Demand = 200 units. Lot for Lot

𝑂𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = 𝐴𝑛𝑛𝑢𝑎𝑙𝐸𝑂𝑄

𝐷𝑒𝑚𝑎𝑛𝑑
• Economic Order Quantity Fixed Period Requirements
(EOQ)= 58 units.
𝑃𝑒𝑟𝑖𝑜𝑑 𝑂𝑟𝑑𝑒𝑟 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 𝑃𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑂𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 Period order quantity (POQ)
• Periods per year (months) =
12 months.
Least unit cost (LUC)

𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 200

𝑂𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = 𝐸𝑂𝑄
= 58
= 3.4 orders Least total cost (LTC)

12
𝑃𝑒𝑟𝑖𝑜𝑑 𝑂𝑟𝑑𝑒𝑟 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 𝑃𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑂𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
= = 3.5 Part-period balancing (PPB)
3.4
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 Lot Size
LOT-SIZING TECHNIQUES
Period Order Quantity (POQ) Discrete lot-
sizing
Period Order Quantity
Period techniques
(POQ)
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Lot for Lot
Net Requirements 35 10 0 40 0 20 5 10 30
Fixed Period Requirements
Planned Order Coverage 85 35 30

Period order quantity (POQ)

Least unit cost (LUC)

• The POQ approach is more effective than the EOQ approach because setup cost per year is
the same but carrying cost will tend to be lower under POQ
Least total cost (LTC)

Part-period balancing (PPB)

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 Lot Size
LOT-SIZING TECHNIQUES
Least Unit Cost (LUC) Discrete lot-
• Least Unit Cost allow both the lot size and the ordering interval to vary. sizing
• LUC produce the demands of the present periods, then evaluates future periods. techniques
• This method choose the Least Unit Cost (Setup cost + Inventory carrying cost) over successive
periods by adding the total carrying cost to the set up cost and find the smallest period that Lot for Lot
have least cost.
LUC LOGIC Fixed Period Requirements

Period
Least Unit Cost (LUC) Period order quantity (POQ)
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Least unit cost (LUC)
Net Requirements 12 15 9 17 8 10 16 7 11

Scheduled Receipts 53 52 Least total cost (LTC)

Inventory on hand 41 26 17 0 44 34 18 11 0
Part-period balancing (PPB)
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 Lot Size
LOT-SIZING TECHNIQUES
Least Unit Cost (LUC) Discrete lot-
Least Unit Cost (LUC)
Period sizing
Net Requirements
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
12 15 9 17 8 10 16 7 11
techniques
Scheduled Receipts 53 52 Lot for Lot
Inventory on hand 41 26 17 0 44 34 18 11 0

Carrying Cost $ (per Fixed Period Requirements

Set up cost $ 5.75 period) 0.05
Gross Set up Carrying Total Unit Total Cost = Set up cost + carrying Cost
Period Requirement Period order quantity (POQ)
cost $ Cost $ Cost $ Cost $
1 12 5.75 0 5.75 0.479
Least unit cost (LUC)
27 5.75 0.75 6.5 Carrying Cost= cost of holding inventory
1 to 2 0.241
1 to 3 36 5.75 1.65 7.4 0.206 Least total cost (LTC)

1 to 4 53 5.75 4.2 9.95 0.188

Unit cost = total cost / # of orders (gross
Part-period balancing (PPB)
1 to 5 61 5.75 0.189 requirements)
5.8 11.55
 Lot Size
LOT-SIZING TECHNIQUES
Least Unit Cost (LUC) Discrete lot-
Least Unit Cost (LUC)
Period
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
sizing
Net Requirements
Scheduled Receipts
12
53
15 9 17 8
52
10 16 7 11
techniques
Inventory on hand 41 26 17 0 44 34 18 11 0
Lot for Lot
Set up
Period # of item ordered Carrying Cost Total Cost Unit Cost
cost
1 12 0 Fixed Period Requirements
1 to 2 =12+15 =(15*0.05) = setup cost
1 to 3 =12+15+9 5.75 =(15*0.05)+(9*0.1) +
Total cost/ # of
items
1 to 4 =12+15+9+17 $ =(15*0.05)+(9*0.1)+(17*0.15) Carrying cost Period order quantity (POQ)
1 to 5 =12+15+9+17+8 =(15*0.05)+(9*0.1)+(17*0.15)+(8*0.2)
Set up
Period # of item ordered Carrying Cost Total Cost Unit Cost Least unit cost (LUC)
cost
1 12 0 5.75 0.479
1 to 2 27 5.75 0.75 06.5 0.241 Least total cost (LTC)
1 to 3 36 $ 1.650 7.4 0.206
1 to 4 53 4.2 9.95 0.188
1 to 5 61 5.8 11.55 0.189 Part-period balancing (PPB)
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 Lot Size
LOT-SIZING TECHNIQUES
Least Total Cost (LTC) Discrete lot-
• Least Total Cost select lot sizes (order quantities) and times their releases as to obtain the sizing
least total cost over the planning horizon.

Least Total Cost (LTC)

Period techniques
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Net Requirements 12 15 9 17 8 10 16 7 11 Lot for Lot
Scheduled Receipts 61 44
Inventory on hand 49 34 25 8 0 34 18 11 0
Fixed Period Requirements
Period Units Period Carried Period Carrying costs
2 15 1 =15*0.05*1 let Carrying cost
Period order quantity (POQ)
3 9 2 =9*0.05*2 =0.05 $
4 17 3 =17*0.05*3
5 8 4 =8*0.05*4 Least unit cost (LUC)

Period Units Period Carried Period Carrying costs Cum. Carrying cost
2 15 1 0.75 0.75 Least total cost (LTC)
3 9 2 0.9 1.65
4 17 3 2.55 4.2
5 8 4 1.6 5.8 Part-period balancing (PPB)
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 Lot Size
LOT-SIZING TECHNIQUES
Part-Period balancing (PPB) Discrete lot-
• Part Period Balancing is a variation of the LTC approach. It converts the ordering cost to its sizing
equivalence in part periods.
techniques
Economic Part Period Calculation
Lot for Lot
Where
𝑠 EPP is the economic part period.
𝐸𝑃𝐸 = Fixed Period Requirements

𝑘 S is the ordering cost.

K is the carrying cost of one unit for one period. Period order quantity (POQ)

Assume the following Least unit cost (LUC)

• The Ordering cost = 5.75 $ 𝐸𝑃𝐸 =

𝑠 5.75
= = 115
Least total cost (LTC)

• The Carrying cost = 0.05 $ 𝑘 0.05

Part-period balancing (PPB)
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 Lot Size
LOT-SIZING TECHNIQUES
Part-Period balancing (PPB) Discrete lot-
sizing
𝑠 5.75
𝐸𝑃𝐸 = = = 115 techniques
𝑘 0.05
Period
Part-Period Balancing Lot for Lot
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Net Requirements 12 15 9 17 8 10 16 7 11
Scheduled Receipts 61 44
Fixed Period Requirements
Inventory on hand 49 34 25 8 0 34 18 11 0
Period Units Period Carried Part Periods Cum. Carrying cost
Period order quantity (POQ)
2 15 1 =15*1= 15 15
3 9 2 =2*9=18 33
4 17 3 51 84 Least unit cost (LUC)
5 8 4 32 116
116

6 10 5 50 166 Least total cost (LTC)

• Since 116 is the closet value to 115, the requirements for period 2 through 5 should be Part-period balancing (PPB)
included in the order due in Period 1. www.planning-go.com
 Lot Size
LOT-SIZING TECHNIQUES
Wagner-Whitin algorithm Discrete lot-
• This technique embodies an optimizing procedure based on a dynamic programming model.
sizing
techniques
Lot for Lot

• Basically, it evaluates all possible ways of ordering to cover net requirements in each period
of the planning horizon. Fixed Period Requirements

Period order quantity (POQ)

Least unit cost (LUC)

• Its objective is to arrive at the optimal ordering strategy for the entire net requirements
schedule.
Least total cost (LTC)

Part-period balancing (PPB)

Wagner-Whitin algorithm
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 1. Lot Size Technique.
2. MRP Structure (Input, Process , Output).
The Road Map 3. The time horizon Logic of MRP.
4. MRP Logic Calculations.
5. The Case study & Item Master creation.

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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)

Inputs Process Output

Master Production Scheduling
Exploding Work Orders

Product Structure File or BOM

Inventory record file Netting Purchasing Orders

Independent demand
Forecasts
Offsetting Rescheduling notices
External orders or components

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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
• Product structure imposes the principal constraint on the computation of requirements.
• The constraint is caused by the fact that a given component item can exist as a unique part
or to be an assembled component, in which case it has lost its individual identity.
Inputs
Product Structure File
Level 0 Final Product
(X)
or BOM

Inventory record file

Level 1 Component (A) Component (B)

Independent demand
Forecasts
Level 2 Subcomponent
(D)
Component (B)
Subcomponent
(Y)
Maser Production
Scheduling

Level 3 Subcomponent
(Z) External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)

Level 0 Final Product

(X)
Inputs
Level 1 Component (A) Component (B)

Product Structure
File or BOM
Subcomponent Subcomponent
Level 2 (D)
Component (B)
(Y)

Inventory record file

Subcomponent
Level 3-Low Level Code (Z)
Independent
demand Forecasts
• Low-Level Code: This is the lowest level code of an item in the bill of materials and indicates
the sequence in which you run items through an MRP. Maser Production
Scheduling
• You use low-level code because an MRP system recognizes and connects the level that an
item appears in the product chain and uses it to plan the proper time to meet all of the External orders or
system demands. components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Parent and Child
• Parent Item is defined as the item produced from one or more components.
• A child (or component) is one of the components or raw materials that comprise the
Inputs
parent.
Product Structure File
Final Product
Level 0 -Parent (X)
or BOM

Inventory record file

Component Component
Level 1- Child of item (A) (B) Independent demand
X Forecasts

Maser Production
Subcomponent Component Subcomponent Scheduling
Level 2-How we can (D) (B) (Y)
define child in level 2
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Parent and Child
Inputs
Product Structure File
or BOM

Child Item of Item (Z) Inventory record file

Independent demand
Child Item of Item (X) Forecasts

Maser Production
Scheduling
Child Item of Item (a) External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Parent and Child
Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
• The engineering document that defines the product is the bill of material (BOM), which
lists components of each assembly and subassembly.
Inputs
Final Product
Product Structure File
Level 0 (X)
(5)
or BOM

Inventory record file

Component Component
Level 1 (A)
(2)
(B)
(3)
Independent demand
Forecasts

Maser Production
Subcomponent Component Subcomponent Scheduling
Level 2 (D)
(2)
(B)
(1)
(Y)
(2) External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
• A listing of all Qnty of the raw materials, parts, subassemblies, and assemblies needed to
produce one unit of a product (SKU).
Inputs
Product Structure File
It may be named based on the type of industry or BOM

Industry Name Inventory record file

Assembly & Production Lines BOM- Bill of Materials.
Independent demand
Construction BOQ- Bill of Quantities. Forecasts

Gradients Pharma & Medical Maser Production

Scheduling
FMCG Recipes
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Represent Inputs
BOM
Product Structure File
or BOM

Single Level Multi Level Modular Inventory record file

BOM BOM Planning BOM
Independent demand
Forecasts

Summarized Maser Production

Indented BOM Scheduling
BOM
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Single Level BOM Inputs
• An overview of components that are directly used in a parent item.
• A single-level BOM shows only the relationship one level down.
Product Structure File
Final Product or BOM
(X)
Inventory record file
(5)
Independent demand
Forecasts
Component Component Maser Production
(A) (B) Scheduling
(2) (3) External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Single Level BOM Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Multi-Level BOM
Inputs
Final Product

Level 0 (X)
(5)
Product Structure File
or BOM

Component Component Inventory record file

Level 1 (A)
(2)
(B)
(3) Independent demand
Forecasts

Maser Production
Subcomponent Component Subcomponent Scheduling
Level 2 (D)
(2)
(B)
(1)
(Y)
(2) External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Multi-Level BOM
Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Indented BOM
• It is a bill of materials to show the lower-level items of the specified item by level according
Inputs
to the structure
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Indented BOM
Inputs
• It exhibits the highest-level parents closest to the left margin, and all the components
going into these parents are shown indented toward the right. All subsequent levels of Product Structure File
components are indented farther to the right. or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Summarized BOM
• A form of multilevel bill of material that lists all the parts and the quantities required in a
Inputs
BOM.
• A summarized BOM only contains purchased items, because all the manufactured items Product Structure File
are made from purchased items. or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Modular Planning BOM
• A bill of material used for products configured from many possible combinations of
Inputs
modules, or options.
Product Structure File
or BOM

Bicycle Inventory record file

Independent demand
Forecasts
Color Size
Common Parts Blue 30% Small 50% Maser Production
100% Red 50% Medium 25% Scheduling
Large 25%
White 20%
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
Modular Planning BOM Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material
• A bill of materials (BOM) is an extensive list of raw materials, components, and instructions
required to construct, manufacture, or repair a product or service.
Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material elements
Inputs
Product Structure File
or BOM

Inventory record file

Independent demand
Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)

Uses of the Bill of Material

Engineering
Inputs
change control
Product Structure File
or BOM

Costing Planning Inventory record file

BOM Independent demand

Forecasts

Maser Production
Scheduling
Customer
Manufacturing
Service External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Bill of Material-Basic Definitions

Definition
Inputs
The Single
BOM List of all parts needed to make exactly one unit. Product Structure File
Unit
or BOM
Unique Each part gets a unique code.
Identifier Inventory record file
If the same part code is on a different bill, it will be the same exact
part.
Independent demand
Forecasts
Quantities & BOMs list the Qnty of each part used to make one unit and the unit of
units measure is specified. Maser Production
Scheduling
Scope BOMs clearly indicate what is and is not used in a unit.
External orders or
If the part is not listed on the BOM, it is not used in that unit. components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Warm up
Truck
Suppose we want to produce 100 truck
The on hand inventory
1. Component A is 2 units
Inputs
(Parent)
2. Component B is 15 units
3. Component C is 7 units Product Structure File
or BOM

Solution
Component
A Inventory record file

Suppose we want to produce 100 truck Independent demand

Component Forecasts
The Requirements
B
Maser Production
1. For component A = 100-2= 98 from A Scheduling
2. For component B= 100-15= 85 from B
Component 3. For component C = 100-7= 93 from C This is a wrong logic External orders or
C components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Warm up
Truck
Solution Inputs
(Parent) Data Process Calculation
Production
Plan # of trucks to be produced 100 Product Structure File
or BOM
Component Gross needs of Component A 100
Component
A A
On-hand in Component A 2 Inventory record file
Net requirement of A 98

Component
Component B required for 98 Component A (Gross) 98 Independent demand
Component B On-hand in Component B 15 Forecasts
B Net requirement of B 83 Maser Production
Component C required for 83 Component B (Gross) 83 Scheduling
Component
C On-hand in Component C 7
Component External orders or
C Net requirement of C 76 components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Warm up
Given the following parents and components, construct a product tree. Figures in
brackets show the quantities per item.(CPIM,APICS,2018)
Inputs
Product Structure File
Parent A B C E or BOM
Component B (2) E (2) G (2) G (4)
Inventory record file
C (4) F (1) F (3)
Independent demand
D (3) H (2) Forecasts

Maser Production
1. What number of Gs are needed? Scheduling
2. Which components are purchased?
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Warm up
Parent A B C E Inputs
Component B (2) E (2) G (2) G (4)
Product Structure File
C (4) F (1) F (3) or BOM
D (3) H (2)
Inventory record file

Independent demand
Forecasts

Maser Production
Number of Gs needed: 24
Scheduling
Purchased components: G, F, H & D External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Warm up To produce the 100 units of A
Level 0 A (100) Part Calculation Qnty
Level 1

Level 1 B (2) C (1) D (10) B 2*100 200

C 1*100 100
D 10*100 1000
Level 2 E (1) F (5) G (4) H (1) I (2)
Level 1
E 1*2*100 200
Level 3 K (1) L (2)
F 5*2*100 1000
G 4*2*100 800

• Product Structure Tree: This is a visual depiction of the bill of materials, showing Level 3
how many of each part and how many sub-parts you need to produce the product. K 1*4*2*100 800
L 2*4*2*100 1600

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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Inventory Records File
• The inventory records file is used to track information on the status of each item
Inputs
by time period.

Product Structure File

or BOM

Inventory Inventory record file

Record file

Independent demand
Forecasts
General data Item Data

Maser Production
Scheduling
On hand Gross Schedule
Supplier Lead time Lot Size
inventory Requirement Receipt External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Independent demand & external orders
Inputs
• Independent Demand Items, which have no direct Product Structure
relationship with other demands, are requested only
File or BOM
according to the forecast

Inventory record file

Independent
demand Forecasts

Maser Production
Scheduling
• External orders may be the confirmed orders.
External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Master Production Scheduling
• The master schedule outlines the anticipated production activities of the plant. Inputs
• Developed using both internal forecasts and external orders.
Product Structure
File or BOM
• The master schedule separates the planning horizon into time "buckets," which are usually
calendar weeks.
Inventory record file

Independent
demand Forecasts

Maser Production
Scheduling

External orders or
components
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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)

Exploding
Process
• Explosion uses the Bill of Materials (BOM).

• This lists how many, of what components, are needed for each item (part, sub assembly,
final assembly, finished product) of manufacture.
Exploding

Netting
Netting

• Netting: the net quantity of material calculated by computing the difference between the
stock available in the factory from the overall, gross requirement.
• This figure is provided by exploding. Offsetting

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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)

Offsetting (Lead time)

• Placing the requirements in their proper time Periods based on Leadtime . Process
There are three major assumptions made when constructing an MRP schedule:

First
Exploding

The Most
Important Second
Netting
There is sufficient
capacity available
The lead times
Third
are known or it
can be estimated. The date the order is required can be used as the starting date from
MRP is
sometimes called which to develop the schedule.
infinite capacity
scheduling
Offsetting

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 Structure of MRP
The Structure of Materials Requirement Planning (MRP)
Before we continue
What is the meaning of Lead Time (LT) :- Process
Exploding

Netting
• Lead time is the amount of time that passes from the start of a process until its conclusion.

• In MRP lead times are used to determine starting dates for assembling & Manufacturing
final productions and sub assemblies (For production the components parts, and for Offsetting
ordering raw materials.
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 Structure of MRP

Input Provided Information Process

MPS The Plan is to produce 10 cars Exploding _Vertical and

horizontal dependency_ ( I
BOM Each Car need 1 engine need 10 engines) Netting (I only need 8
engines)
Inventory Level On Hand Stock = 2 engines Offsetting (I will
request the 8 engines
Planning Data This order required after 3 months, Lead time 1 month after 2 months)
 1. Lot Size Technique.
2. MRP Structure (Input, Process , Output).
The Road Map 3. The time horizon Logic of MRP.
4. MRP Logic Calculations.
5. The Case study & Item Master creation.

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 Processing Logic
TIME PHASING TECHNIQUES
• The Gregorian calendar is the calendar used in most of the world.

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 Processing Logic
TIME PHASING TECHNIQUES
Dates and Time Buckets

Period
Day 1 Day 2 Week 1 Week 2 Month 1 Month 2 Quarter 1 Quarter 2
The Gross
Requirements

Row of different time values display

• MRP systems are designed in such a way that requirements and inventory data can be entered, stored, and processed
internally by date/quantity but displayed in time bucket format.

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon
Level 1
Level 0
B Lead time = 3 weeks

A C Lead time = 4 weeks

Lead time
= 1 week D Lead time = 5 weeks

• A planning horizon is the length of time (i.e., the number of weeks or months) into the future for which plans are made

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon
Level 1
Level 0
B
A Lead time = 3 weeks
C
Lead time Lead time = 4 weeks
= 1 week D
Lead time = 5 weeks

Week 5 Week 4 Week 3 Week 2 Week 1

The Lead Time

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon
Level 1
Level 0
B
A Lead time = 3 weeks
C
Lead time Lead time = 4 weeks
= 1 week D
Critical Path (Longest Path)
Lead time = 5 weeks

• To ensure that MRP provides data on items at all levels in bills of material (BOMs), the planning horizon at least should equal
the largest total of item lead times (cumulative lead time) in the critical (longest) path leading from raw material to the end
item appearing in the master production schedule (MPS).

• Cumulative Lead Time: This is the greatest amount of time that it takes to develop the product.

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon
Level 1
Level 0
B
A Lead time = 3 weeks
C
Lead time Lead time = 4 weeks
= 1 week D
Lead time = 5 weeks

• If planning horizons are too short, the process of successively offsetting for lead time in level-by-level planning will run into
past periods when it reaches items on the lowest level.

• To ensure some forward visibility of data on purchased items, planning horizons should be significantly longer than the
critical-path lead time.

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon
Discussion

APICS,CPIM VERSION7 Materials

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon-Safety Stock & Safety time
Notes on the following activity lead time

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13 Week 14

Materials Purchasing Part Manufacturing Sub assembly Final assembly Test

• As long as parts procurement and manufacturing lead time are constant and the MPS is frozen (Fixed) for sufficient time to
be purchased or manufactured, this lead to (Zero Safety Stock- we don’t need any Safety Stock).

• Actually the MPS (Which represent the time) is not fixed and may be changed, thus lead to carrying Safety Stock to buffer us
from any fluctuation .

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 Processing Logic
TIME PHASING TECHNIQUES
Planning Horizon-Safety Stock & Safety time
How Safety Stock Impact System behavior ?

Data/Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9

Gross Requirements 12 15 9 17 8 10 16 7 11

Scheduled Receipts 15 15

On-Hand 10 13 13 19 17 24 14 13 21 10

Net Requirements 6 8 1 12 4

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 1. Lot Size Technique.
2. MRP Structure (Input, Process , Output).
The Road Map 3. The time horizon Logic of MRP.
4. MRP Logic Calculations.
5. The Case study & Item Master creation.

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 MRP Logic & Calculation
Warm Up
What is Materials Requirement Planning
• Material requirements planning (MRP) is a computer-based inventory management system designed to improve productivity
for businesses.

• A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate
requirements for materials.

• It makes recommendations to release replenishment orders for material.

• Because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in
phase.

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

• Gross requirements is the total expected demand for an item or raw material in a time period.

• Scheduled receipts Open orders scheduled to arrive from vendors or elsewhere in the pipeline.

• Projected on hand Expected amount of inventory that will be on hand at the beginning of each time period.

• Net requirements The actual amount needed in each time period.

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

• Planned orders receipts – shows when orders must arrive in order to avoid a shortage of necessary parts or materials.

• Planned receipts correspond to orders planned for release, but not yet released

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

Planned Order – definition with example

• In materials requirements planning (MRP), Planned Order is a process that determines the number of items that need to be
ordered to meet the future demand for those items.
• The Planned Order quantity is then used to create purchase or manufacturing orders.

• This way helps ensure that the correct quantity and variety of items are always available when needed.

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

Planned Order – definition with example

Planned Order Receipt Planned Order Release

Think about Lot Sizing Rule. Think about the Lead Time.

When order required to be placed to

When order required to be received.
receive on time.
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 MRP Logic & Calculation
Warm Up
THE MRP CHART

• Planned orders receipts – shows when orders must arrive in order to avoid a shortage of necessary parts or materials.

• Planned receipts correspond to orders planned for release, but not yet released

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 MRP Logic & Calculation
Warm Up
THE MRP CHART

• Planned order releases – indicates the time periods in which the orders must be released (or placed) to arrive at the
correct time.

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 MRP Logic & Calculation
MRP Basic Processing Steps Determine Gross Requirement

Dependent allocations Independent allocations

Determine available inventory

On hand Projected Inventory on hand Schedule receipt

Calculate Net Requirement

Net Requirement = Gross requirement – available inventory

Calculate Planned order Receipts

Based on Order policy, Lot size, etc.…

Offset by Lead Time

Using lead times for offsetting

The action Message

www.planning-go.com Purchase order Production Order Cancel Order Rescheduling

 MRP Logic & Calculation
THE MRP CHART-CALCULATION LOGIC
Example 1
• Calculate the Net Requirement & Planned Order Receipt & Order Release ? Given that the Lead time is 1 Week.

Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

Gross Requirement 80 190 310
Scheduled Receipts
Projected on Hand I 60 60 60 60 0 0 0 0 0
Net Requirements 20 190 310
Planned-Order Receipts 20 190 310
Planned-Order Release 20 190 310

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 MRP Logic & Calculation
Warm Up
THE MRP CHART-CALCULATION LOGIC

Example 2
Suppose you have the following MPS

Week Number Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

Quantity 100 150

Suppose the following Wooden product structure

Level 0 Shutter (1)

• Number of frames required to produce 1 shutter equal (2)

• Number of wooden section required to produce 1 shutter

Wood equal (4)
Level 1 Frames (2)
Sections (4)
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 MRP Logic & Calculation
Warm Up
THE MRP CHART-CALCULATION LOGIC

Week Number Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

Quantity 100 150

Part Name Shutters Lead time (week) 1 week Lot Size Lot for Lot
Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Gross Requriement 100 150
Scheduled Receipts
Projected on Hand
Net Requirements 100 150
Planned-Order Receipts 100 100
Planned-Order Release 100 100

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 MRP Logic & Calculation
Warm Up
THE MRP CHART-CALCULATION LOGIC
Part Name Shutters Lead time (week) 1 week Lot Size Lot for Lot
Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Gross Requriement 100 150
Scheduled Receipts
Projected on Hand
Net Requirements 100 150
Planned-Order Receipts 100 150
Planned-Order Release 100 150

2 times 2 times

Part Name Frame Lead time (week) 2 week Lot Size Lot for Lot
Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Gross Requriement 200 300
Scheduled Receipts
Projected on Hand
Net Requirements 200 300
Planned-Order Receipts 200 300
Planned-Order Release 200 300
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 MRP Logic & Calculation
Warm Up
THE MRP CHART-CALCULATION LOGIC
Part Name Shutters Lead time (week) 1 week Lot Size Lot for Lot
Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Gross Requriement 100 150
Scheduled Receipts
Projected on Hand
Net Requirements 100 150
Planned-Order Receipts 100 150
Planned-Order Release 100 150

4 times 4 times

Part Name Frame Lead time (week) 1 week Lot Size Lot for Lot
Period Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Gross Requriement 400 600
Scheduled Receipts 70
Projected on Hand 70 70 70
Net Requirements 330 600
Planned-Order Receipts 330 600
Planned-Order Release
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 MRP Logic & Calculation
Example 3
• Calculate the Net Requirement & Planned Order Receipt & Order Release Components B,C and D? Given the Following
• BOM for Parent 1 are B(1) & C(2)
• Components C has Sub-assembly D(4)
• On Hand for Component B = 60, C = 150 and D = 1600
• Safety Stock for Component B = 30, C = 100 and D = 2000
• Lead time for Component B = 1 week, C = 2 week and D = 1 week
MPS For Parent 1 as follows

Schedule Receipt

• Given the order policy is fixed order Quantity, B= 100, C= 150 and D=500
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 MRP Logic & Calculation
Example 3

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 MRP Logic & Calculation
Example 3

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 MRP Output
MRP Output
The Structure of Materials Requirement Planning (MRP)

MRP Output
• The output of MRP is a recommendations, these outputs could be followed, changed or even cancelled.

Control &
Planning Level Planning Level Execution
Level

Work Orders

Planned Order Purchasing

MRP OUTPUT
Schedules Orders

Rescheduling
Notices
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 MRP Output
The Structure of Materials Requirement Planning (MRP)

MRP Output
Type of
Description Uses
report
1. Identify parents affected by an engineering
1. Focus is on the component change
Where-used
2. Lists the parents in which a component is used 2. Assess aggregate impact of costing
report change
whether or not there is a current requirement for it
3. Assess the impact of component scarcity

1. Focus is on the component

1. Assess impact of component shortages on
2. Lists the parents creating a demand for a component
Pegging current due dates (priority plans) for
for which there is a current requirement
report parent items requiring the same
3. Includes components by parent and quantities components in the same period
demanded by period

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 MRP Limitations
The Limitations of MRP Includes

The Materials Requirement Planning have some limitations

• The biggest issue is data integrity & accuracy.

• lead times can throw off MRP. The required lead time can change
based on the product.

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 KPIs for MRP
Some related KPIs related to the MRP includes

Some KPIs includes

Supplier Delivery Performance (Order &

Line Fulfillment )

On time Delivery

Days On Hand (DOH)

Inventory Turns

Logistic Cost Per Unit

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 1. Lot Size Technique.
2. MRP Structure (Input, Process , Output).
The Road Map 3. The time horizon Logic of MRP.
4. MRP Logic Calculations.
5. The Case study & Item Master creation.

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 The Case Study
The MRP Case Study (Using Excel ) will include the following

Level 1 Level 2

Creating the templets for item master data Define the Business (FMCG ).

Creating the Items Master Data.

Assuming the inputs (BOMs, Inventory Levels

Assuming basic data (Lead time and BOM) & Lead times.

Calculation (Level 1 Logic).

Creating the templets for the basic MRP

Calculations (Product tree structure, Planned Running & Sharing the Output.
order release & Planned order release)

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