Lecture Fundamentals of operations management (4/e): Chapter 22 - Davis, Aquilano, Chase

DAVIS
F   O   U   R   T   H       E   D   I   T   I   O   N

AQUILANO
CHASE

chapter 17

Inventory Systems for
Dependent Demand

© The McGraw-Hill Companies, Inc., 2003

PowerPoint
Presentation
by
Charlie
Cook


Chapter Objectives
Chapter Objectives
• Explain the changing role of materials requirements
planning (MRP) within a manufacturing organization.
• Discuss the role of MRP within an enterprise resource
planning (ERP) system.
• Introduce the fundamental concepts and calculations
that drive an MRP system.
• Define the various elements that make up an MRP
system.
• Demonstrate how MRP-related systems are used in

service operations.
© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
17–2


Chapter Objectives (cont’d)
Chapter Objectives (cont’d)
• Recognize that MRP and JIT can be used together
within an organization.

Fundamentals of Operations 
Management 4e 

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Companies, Inc., 2003
17–3


Master Production Schedule
Master Production Schedule
• Master Production Schedule (MPS)
–A time-phased production plan that specifies
how many of, and when to build, each end item.

• Material Requirements Planning
–Determines the number of subassemblies,
components, and raw materials required and

their build dates to complete a given number of
end products by a specific date.

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–4


The Role of MRP within
The Role of MRP within
the Manufacturing Function
the Manufacturing Function

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.1
17–5


The Role of MRP within an ERP System
The Role of MRP within an ERP System

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.2
17–6


Master Production Schedule
Master Production Schedule
• Time Fences
–Periods of time with each period having some
specified level of opportunity for the customer
to make changes.
–Frozen
• Make no or only insignificant changes to products.

–Moderately firm
• Allow some changes in specific products.

–Flexible
• Allow almost any variation in products.

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–7

Integrating MRP and JIT into the Supply Chain
Integrating MRP and JIT into the Supply Chain

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.3
17–8


Master Production Schedule Time Fences
Master Production Schedule Time Fences

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.4
17–9


Material Requirements Planning (MRP) 
Material Requirements Planning (MRP) 
Systems
Systems
• Materials Requirements Planning System
–Creates requirements and schedules identifying

the parts, components, and materials necessary
to produce the end products specified in the
MPS.
–Links inventory and scheduling systems.

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–10


Purposes, Objectives, and Philosophy 
Purposes, Objectives, and Philosophy 
of MRP
of MRP
• Inventory Control
–Order the right part in the right quantity at the
right time.

• Assign Operating Priorities
–Order with the right due date and keep the due
date valid.

• Capacity
–Plan for a complete and accurate load.
–Plan for an adequate time to© The McGraw­Hill 
view future load.

Fundamentals of Operations 
Management 4e 

Companies, Inc., 2003
17–11


Inventory Management Under MRP
Inventory Management Under MRP
• Theme
–Getting the right materials to the right place at
the right time.

• Objectives
–Improve customer service.
–Minimize inventory investment.
–Maximize production operating efficiency.

• Philosophy
–Expedite materials if overall production.
schedule will be delayed. © The McGraw­Hill 
–De-expedite materials if schedule
falls behind.
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
17–12


Benefits of an MRP System

Benefits of an MRP System
• More competitive pricing
• Lower selling price
• Lower inventory levels
• Improved customer service
• Faster response to market demands
• Increased flexibility to change the master
schedule
• Reduced setup and tear-down costs
• Reduced idle time
© The McGraw­Hill 

Fundamentals of Operations 
Management 4e 

Companies, Inc., 2003
17–13


Industry Application and Expected Results
Industry Application and Expected Results

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.5
17–14

MRP System Structure
MRP System Structure
• Demand for Products
–Available-to-promise
–Demand for spare parts and supplies

• Bill of Material (BOM) File
–A list of subassemblies, components, and raw
materials, and their respective quantities
required to produce specific end items
–Also, product structure or product tree file

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–15


MRP System Structure
MRP System Structure
• Inventory Records File
–Computerized record-keeping system for the
inventory status of all subassemblies,
components, and raw materials.
–Peg record file (also “where-used file”)
–Inventory transaction file

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–16


Overall View of the Inputs to a Standard MRP Program 
Overall View of the Inputs to a Standard MRP Program 
and the Reports Generated by the Program
and the Reports Generated by the Program

Fundamentals of Operations 
Exhibit 17.6
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–17


Product Structure Tree for Product A
Product Structure Tree for Product A

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003

Exhibit 17.7
17–18


Subassemblies and Parts List in an 
Subassemblies and Parts List in an 
Indented Format and in a Single­Level List
Indented Format and in a Single­Level List

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.8
17–19


Part L Hierarchy in (a) Expanded to 
Part L Hierarchy in (a) Expanded to 
the Lowest Level of Each Item in (b)
the Lowest Level of Each Item in (b)

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.9
17–20

The Inventory Status Record
The Inventory Status Record
for an Item in Inventory
for an Item in Inventory

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.10
17–21


MRP Computer Program
MRP Computer Program
• Output Reports
–Primary reports
• Planned orders
• Order release notices
• Changes in due dates
• Cancellations or suspensions of open orders
• Inventory status data

–Secondary reports
• Planning reports
• Performance reports
• Exceptions reports

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–22


Product Structure Tree for Product T
Product Structure Tree for Product T

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.11
17–23


Materials 
Materials 
Requirements Plan 
Requirements Plan 
for Completing
for Completing
100 units of 
100 units of 
Product T in Period 

Product T in Period 
88

Fundamentals of Operations 
Exhibit 17.12
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
17–24


The Environment of the Master Scheduler
The Environment of the Master Scheduler

Fundamentals of Operations 
Management 4e 

Source: Romeyn C. Everdell and Woodrow W. Chamberlain, “Master
Scheduling in a Multi-Plant Environment,” Proceedings of the American
Production and Inventory Control Society (1980), p. 421.

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 17.13
17–25