Lead time is one of the basic input to MRP. MRP system is concerned with two types of Lead Time i.e., Ordering Lead time and Manufacturing Lead time. Ordering lead time deals with procurement of components. In our example Maruti company places order for 4000 units of tyres and tubes from Bridgestone company. Bridgestone takes 7 days to supply the tyres and tubes from the date of receiving purchase order from Maruti, the ordering lead time is 7 days.
There are certain components which are produced within the company and the process takes time. This refers as manufacturing lead time. In our example Maruti produces 1000 units of Alto model car. The doors of the car are manufactured in the Maruti plant itself. The company procure steel and make 4 doors according to the Alto model in their plant. This sub assembly process involves cutting steel sheet then make doors . This entire door making process takes some time and this referred as Manufacturing lead time. The manufacturing process will be carried out in lot batches.
Lead time are critical input to MRP system and if any inaccurate data will hamper the production schedule. Manufacturing lead time can be established by observing the process time on regular basis and keep update record periodically. But ordering lead time is the critical as it depends on our supplier. In our above example if Bridgestone company take 10 days to deliver 4000 units of tyres and tubes against the normal 7 days delivery time the production of Maruti Alto model will be held up for three days. Hence one has to exercise appropriate control over ordering lead time to run MRP system smoothly.
Now let us see MRP calculation with simple cycle manufacturing example. Let us take an Hero cycle company for example and assume that they are manufacturing only two models of cycle i.e., general, sports and try to understand the MRP computation method. Let us consider the inputs to MRP system.
Master Production Schedule (MPS) – It contains
a) What end products are to be produced ?
b) How many of each products ?
c) When the products are ready for dispatch ?
Given below the sample MPS format
The above format contain information like 200 units of sports cycle to be made available on 6th of the months and 500 units of sports cycle by 9th. Similarly 100 units of General cycle to be available on 7th and 200 units by 10th. The MPS gives direction to production department what are the products to be products with exact quantity by what period. Please note that time period could be day, week, fortnight etc.
Bill of Material (BOM) – Sample BOM structure is given below.
The General Cycle model require two sub assemblies i.e., 1unit of assembled cycle body and 1 unit of assembled wheel to produce one unit of final product. These two sub assemblies are manufactured at the cycle factory and hence it has manufacturing lead time.
Sub assembly of cycle body require 1 unit of handle bar, cycle frame, seat as components. Whereas Sub assembly of wheel requires 2 units of wheels, tyre and tubes, pedals and 1 unit of chain as components. These components are procured from different suppliers and hence it has ordering lead time.
In case of Sports cycle Gear unit is the additional component in the sub assembly of cycle body.
One must remember any engineering changes affecting the product structure must be incorporated in to the BOM file. Since we have taken simple example for MRP computation, the BOM look so simple. If you take Maruti Alto BOM it will be so complex due to lot of sub assembly line and 1000 of components involved to make one unit.
Inventory Status : Now let us focus our attention to Initial Inventory status report for raw material Handle bar.
Generally, Inventory status report generate from computerized Inventory Master file. Each items in the inventory file should have lead time (manufacturing or ordering) associated with that. So far we have given Inventory status report for one component Handle Bar alone. In the above example the company has 50 units of handle bar as opening stock and getting 100 additional units from the suppliers on 3rd. Hence on 3rd the company is having 150 units of handle bar .
The company will have inventory status report for all components like gear, tyre & tubes etc. The information available in inventory file should be accurate otherwise it will affect the MRP and Production planning.
Lead time details are given below for manufacturing (assembly) and ordering (raw materials).
The above table require little bit of explanation and one may require to refer BOM structure of General and Sport cycles. The final product P1 to be assembled from sub assembly 1 & 2 and it take 2 days to produce General cycle. Similarly final product P2 to be assembled from sub assembly 3 & 4 and it take 3 days to produce Sports cycle.
Sub assembly 1 (S1) take 2 days to assemble general cycle frame from raw materials (R1, R2 & R3) and similarly sub assembly 2 (S2) take 1 day to assemble general cycle wheel from raw materials (R4, R5, R6, R7).
Sub assembly 3 (S3) take 2 days to assemble Sport cycle frame from raw materials (R8, R9 & R10,R11) and similarly sub assembly 4 (S4) take 2 days to assemble general cycle wheel from raw materials (R12, R13, R14, R15).
In the above example we are getting components and assembled the same for final product. In this model we are not manufacturing any thing. For example we are getting cycle frame from suppliers directly. Instead if we get steel tube from the suppliers and manufacture cycle frame separately by cutting steel tube, shape it and weld it in our factory this involves another sub routine process. Hence manufacturing lead time is eliminated in this process.
For simplicity we assume, Ordering lead time for all raw materials / components are 5 days. In other words if we place order for any component, the supplier take 5 days to deliver the product. In real scenario the ordering lead time for each component differ.
Now we got the all inputs (MPS, BOM, Inventory Status, Lead time). In the next session we will see how to compute MRP using the logic as explained in previous blog.