OPS 405 Week 4 Material and Capacity Planning Example

Exploding the Boom Cylinder: Material Requirements and Capacity Requirements Planning at a Hydraulic Cylinder Plant

[Student Name]

University of Phoenix

OPS/405: Enterprise Resource Management

Week 4 Assignment

[Instructor Name]

[Date]

Saginaw Valley Fluid Power, its bills of materials, lead times and loads are composites written for a model paper.

Week 3 built a master production schedule for Saginaw Valley Fluid Power, the composite cylinder plant in Saginaw, Michigan, including lots of 200 BC-4520 boom cylinders in weeks 2, 4 and 7. The master schedule says what to finish; it does not say what to buy, what to make in the machine shop or whether the machines can handle it. Material requirements planning (MRP) and capacity requirements planning (CRP) answer those questions.

What MRP Needs

MRP uses three inputs: the master schedule, the bill of materials for each end item and inventory records showing on-hand quantities, open orders, lead times and lot-sizing rules. Orlicky (1975), who popularized MRP, argued that components of an end item should be planned from the schedule of that end item rather than from their own past usage, because their demand is dependent. Vollmann et al. (2005) emphasized that MRP's output depends on accurate records and realistic parameters.

The Boom Cylinder's Bill of Materials

One BC-4520 cylinder requires: one barrel tube assembly, made in house from purchased honed tubing and two welded ports; one chrome-plated rod, machined in house from purchased chrome bar; one piston and one gland, machined in house from bar stock; one seal kit, purchased; and two clevises, purchased as forgings and machined. Assembly and testing follow. Purchased lead times are three weeks for seal kits and five weeks for chrome bar; machining takes one week.

An MRP Record for the Seal Kit

The SK-45 seal kit is used by the BC-4520 and by another model scheduled for 150 units in weeks 3 and 6. Gross requirements by week: week 1, 0; week 2, 200; week 3, 150; week 4, 200; week 5, 0; week 6, 150; week 7, 200; week 8, 0. On hand at the start: 260. A scheduled receipt of 300 arrives in week 1. Lot size: multiples of 250, the supplier's pack quantity. Lead time: three weeks.

Projected on hand: week 1, 260 plus 300 = 560. Week 2, 560 minus 200 = 360. Week 3, 360 minus 150 = 210. Week 4, 210 minus 200 = 10. Week 5, 10. Week 6, 10 minus 150 would leave minus 140, a net requirement of 140, covered by a planned receipt of 250, leaving 110. Week 7, 110 minus 200 would leave minus 90, a net requirement of 90, covered by another planned receipt of 250, leaving 160. Week 8, 160.

Planned order releases, offset three weeks: 250 in week 3, for receipt in week 6; 250 in week 4, for receipt in week 7. When week 3 arrives, the buyer converts the first planned order into a purchase order.

A seal kit ordered too late stops a cylinder that every other part is ready for.

Other Components in Summary

Chrome bar, with a five-week lead time, must be released almost immediately for the week 7 lot and one week ago for the week 4 lot; MRP flags the late order as an exception, and the buyer expedites it from the supplier's local warehouse. Pistons and glands generate machining work orders released one week before each assembly lot. Clevis forgings are covered by inventory until week 6.

Capacity Requirements Planning

MRP assumes unlimited capacity, so CRP checks it. The rod machining center, a CNC lathe that turns and threads chrome rods and machines pistons and glands, has about 120 available hours a week. Converting released and planned work orders for all models into hours by week gives: week 1, 104 hours; week 2, 112; week 3, 138; week 4, 96; week 5, 118; week 6, 109. Week 3 is overloaded by 18 hours because rod orders for two large lots coincide.

Resolving the Overload

The planner considered four options. Overtime on Saturday, about 10 hours, costs about $1,100 in premium. Moving one rod order of about 9 hours into week 2, which has 8 spare hours, is possible because the bar is already in stock. An older manual lathe can turn simpler rods at about half the speed. Delaying a lot would break the master schedule's frozen zone. The planner moved one order into week 2, sent about 5 hours of simple rods to the manual lathe and scheduled 5 hours of Saturday overtime. Enns (2001) studied MRP systems and found that lot sizes and planned lead time settings significantly affect performance, including the tendency of loads to bunch; the plant will review whether smaller rod lots would smooth the lathe's load.

How Planners Use the Output

MRP produces hundreds of planned orders and exception messages each week, more than planners can review one by one. Saginaw Valley's planners work by exception: each morning they review messages telling them to release an order, expedite a late one, push one out because demand moved or cancel one that is no longer needed. They act on messages inside the next three weeks first, since those affect the frozen schedule, and batch the rest for a Friday review. Over time the number of expedite messages is itself a measure of how well the plan is working; a rising count signals bad lead times or unstable schedules.

Making MRP Trustworthy

MRP is only as reliable as its inputs. Saginaw Valley will count seal kits and chrome bar monthly and other items quarterly, target 97 percent inventory accuracy, review supplier lead times quarterly against actual deliveries and require engineering changes to bills of materials to be released before the affected lots enter the frozen zone. Hopp and Spearman (2004) argued that what distinguishes pull systems is a cap on work in process, and that MRP-based push systems can perform well when combined with such limits and realistic lead times. The plant will also cap work released to the lathe at two weeks of load.

Conclusion

MRP translates Saginaw Valley's master schedule into a time-phased plan for every component: for the SK-45 seal kit, two planned releases of 250 in weeks 3 and 4; for chrome bar, an expedited order flagged as late. CRP then shows that those plans overload the rod lathe in week 3, resolved by moving work earlier, using an alternate machine and a few hours of overtime. Accurate inventory, realistic lead times and controlled changes keep both calculations worth trusting.

References

Enns, S. T. (2001). MRP performance effects due to lot size and planned lead time settings. International Journal of Production Research, 39(3), 461-480. https://doi.org/10.1080/00207540010002810

Hopp, W. J., & Spearman, M. L. (2004). To pull or not to pull: What is the question? Manufacturing & Service Operations Management, 6(2), 133-148. https://doi.org/10.1287/msom.1030.0028

Orlicky, J. (1975). Material requirements planning: The new way of life in production and inventory management. McGraw-Hill.

Vollmann, T. E., Berry, W. L., Whybark, D. C., & Jacobs, F. R. (2005). Manufacturing planning and control for supply chain management (5th ed.). McGraw-Hill/Irwin.