Chapter 11 MRP Example - Inventory Planning S > Recently, Phil Harris, the production control manager at McLaren Engine works an article on Time-Phased Requirements Planning. He was curious about how this te nique might work in scheduling McLaren's engine assembly operations and decided how this tech- prepare an example to illustrate the use of Time-Phased Requirements Planning Phil's first step was to prepare a master schedule for one of the engine tv duced by McLaren - the Model 1000 engine. This schedule indicates the numbe units of the Model 1000 engine to be assembled each week during the next twel weeks and is shown in Figure 11-1. Model 1000 Master Schedule Week 2 3 4 5 6 7 8 9 10 11 Demand 15 5 7 10 15 20 10 0 8 12 Model 1000 Product Structure (Bill of Material) Engine Assembly Crankcase Gear Box Lead time = 2 weeks Used: 1 per engine Input Shaft Lead time 3 weeks Used: 2 per gear box FIGURE 11-1 Master Schedule and Product Structure for the Model 1000 Engine To meet the demand shown in the master schedule, hundreds of components would ample by considering be needed. Phil decided to simplify his requirements planning example by conside only two of the components that are needed to complete the assembly of the Model 1000 engine. These two components, the gear box and the input shaft, are shown in the Prod Structure Diagram in Figure 11-1. Phil noted that the gear box is assembled by the sub assembly department and is subsequently sent to the main engine assembly line. The inp shaft is one of several component parts manufactured by McLaren in the machine shop to produce a gear box sub-assembly. Thus, the Product Structure Diagram Supply Chain Inventory Planning the assembly line parts stockor gear boxes, and that all the sacram. Note that 2 weeks at takes 3 weeks to Monday morning of the es must be delivere dicates the three manufacturing stages involved in producing an engine: The engine assembly department, the sub-assembly department, and the machine shop The manufacturing lead times required to produce the gear box and input shaft gents are also indicated in the Product Structure Diagram. Note that 2 weeks we required to produce a batch of gear boxes, and that all the gear boxes must be delivered to the assembly line parts stockroom before Monday morning of the week in which they are be used. Likewise, it takes 3 weeks to produce a batch of the Input Shafts, and all the shafts that are needed to produce Gear Boxes in a given week must be delivered to the Sub- Assembly Department stockroom before Monday morning of the week they are required. In preparing the MRP example Phil used a spreadsheet, as shown in Figure 11-2 (Excel file is available from http://www.oscm-pro.com/scp). In preparing his spread sheet he assumed that there were 17 gear boxes and 40 input shafts at the beginning of week I (engines are made to customer order, so there are none in inventory). In addi tion to the inventory, Phil found that there was a shop order for 5 gear boxes that were scheduled to be completed by the start of week 2. There was another shop order for 22 input shafts scheduled for delivery at the start of week 2. 1 Week Quantity 2 5 Engine Assembly Master Schedule 3 4 5 6 7 7 10 15 20 9 10 11 12 8 10 11 12 216 Gear Box Requirements (Subassembly Department) - Lead Time - 2 weeks Week 1 2 3 4 5 6 7 8 9 10 Gross 15 5 7 10 15 20 10 8 requirements On-hand 172 Scheduled receipts 15 20 10 Net requirements Planned order 2010 B 2 16 release 10 Input Shaft Requirements (Machine Shop) - Lead Time - 3 weeks 2 3 4 5 6 7 8 9 1020304020164 30 32 322 Week Gross requirements On-hand 40 Scheduled receipts Net requirements Planned order release 1 6 38 20 164 FIGURE 1-2 MRP Planning Spreadsheet For his initial plan, Phil wanted to keep inventor uled according to the exact requirements on actual customer orders. To meet the one gear box from the sub-assembly depe schedule Gross requirements in the gear box schedule. al plan, Phil wanted to keen inventory as low as possible, so he sched- the exact requirements each week. The master schedule is set based stomer orders. To meet this schedule, the engine assembly department needs "ne sub-assembly department for each engine. This is reflected in the Working across the on-hand row. starting with 17 gear boxes in inventory, Phil cal- lated that he would have two gear boxes (17 on hand - 15 to meet the requirement in week 1) at the end of week 1. At the end of week 2. he would still have two units at the end of the week since the 5 units that are scheduled receipts will be available to meet the requirement in week 2. Moving forward to week 3, only 2 of the 7 required units are available from inventory, so there is a net requirement for 5 units in week 3. To meet this requirement, Phil plans to release an order in week 1 for 5 units. The order is offset by 2 weeks because of the lead time the sub-assembly needs. This will keep his inventory as low as possible. If, for example, Phil had planned to order 7 units in week 1, he would have had to carry 2 units in inventory at the end of week 3. Because his goal is to keen inventory as low as possible, Phil planned the rest of the orders to meet the exact net requirement each week. Now, moving to the input shaft gross requirements, Phil knew that the sub-assembly department needed two input shafts for each gear box. His initial thought was to take the engine assembly master schedule and double the amounts. But then he thought about this and realized the gear boxes that are in inventory already have input shafts in them. He needs input shafts only for the new gear boxes that are going to be made and this sched- ule is in the Planned order release row of the gear box schedule, so he took that row and doubled the numbers to find the gross requirements for the input shaft schedule. He then went on and calculated the on-hand, net requirements and planned order releases. The only difference is that the machine shop needs 3 weeks lead time for new orders. MRP Example Problem - Cost Analysis and Optimization This example is a continuation of the previous one. Phil began studying this new plan and realized that it saved a lot of money in inventory, but the sub-assembly department and the machine shop were going to have to process a number of small orders. This would require higher setup costs and Phil wondered if saving the inventory carrying cost was worth it. His accountant estimates that the setup cost for gear boxes was order in the sub-assembly department and the carrying cost for a gear box was unit period. The input shafts cost $45/order for the setup and Si/unit/period to any inventory. The costs of his schedule are the following: Gear Box Setup Cost = 8 setups * $90/setup = $720 Inventory = 4 parts carried for one period