MRP : Concepts

By:Ankit Mahindroo LECTURER, LMTSOM

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MRP
Material requirements planning (MRP):

Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

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SOME KEY TERMS

GROSS REQUREMENTS The total expected demand for an item or raw material during each time period without regard to the amount on hand. SCHEDULED RECEPTS Open orders (orders that have been placed and are) scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period. PROJECTED ON HAND The expected amount of inventory that will be on hand at the beginning of each time period. NET REQUREMENTS The actual amount needed in each time period.
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SOME KEY TERMS

PLANNED-ORDER RECEPTS The quantity expected to be received by the beginning of the period in which it is shown. PLANNED-ORDER RELEASES
Indicates a planned amount to order in each

time period; equals planned-order receipts offset by lead time

LEAD TIME Lead time is the period between a customer's order and delivery of the final product

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Independent and Dependent Demand Independent Demand

A Dependent Demand

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

Independent demand is uncertain. Dependent demand is certain.

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DEPENDANT DEMAND
Dependent demand: Demand for items that are

subassemblies or component parts to be used in production of finished goods.

Once the independent demand is known, the

dependent demand can be determined.

Material planning is concerned with planning

to meet dependent demand

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DEPENDENT VS INDEPENDENT DEMAND

Independent demand Dependent demand

100 x 1 = 100 tabletops

100 tables

100 x 4 = 400 table legs

400

Continuous demand
400

Discrete demand

No. of tables

300 200 100

No. of tables
1 2 3 Week 4 5

300 200 100

M T W Th F

M T W Th F

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INDEPENDENT DEMAND
Demand for the tables Quantity Time Inventory of tables On-hand inventory
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Time

From Aggregate Plan to MRP

Aggregate Production Plan No Capacity ?
Can we produce 10,000 equivalent units (total for products A, B and C) per month for the next year?

Yes Master Production Schedule No Feasibility approved? Yes Material Requirement Planning
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Can we produce 500 units of A, 600 of B and 400 of C per week for the next month ?

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AGGREGATE PRODUCTION PLAN

Aggregate production planning is concerned with the

determination of production, inventory, and work force levels to meet fluctuating demand requirements over a planning horizon that ranges from six months to one year.
The planning horizon is often divided into periods. For example, a one year planning horizon may be

composed of six one-month periods plus two three-month periods.

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MASTER PRODUCTION SCHEDULE

A Master Production Schedule or MPS is the plan

that a company has developed for production, inventory, staffing, etc.

It sets the quantity of each end item to be

completed in each week of a short-range planning horizon.

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MRP Inputs

MRP Processing

MRP Outputs Changes

Master schedule Primary reports Bill of materials

Order releases Planned-order schedules

Exception reports

MRP computer Secondary programs reports

Planning reports Performancecontrol reports

Inventory records
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Inventory transaction
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MRP Inputs
Master Production Schedule Time-phased plan specifying timing and

quantity of production for each end item. Material Requirement Planning Process

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Master Schedule
Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.

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Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

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Inventory Records
One of the three primary inputs in MRP Includes information on the status of each

item by time period

Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more

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MRP Processing
Gross requirements Schedule receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

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Product Structure Tree

Figure 13.5
Level 0 1 Leg Assembly Chair Back Assembly

Seat

2Legs (2)

Cross bar

Side Cross Back Rails (2) bar Supports (3)

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MRP Example
X A(2) C(3) B(1) C(2) D(5)
Item X A B C D On-Hand Lead Time (Weeks) 50 2 75 3 25 1 10 2 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10 in week 10

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X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20

A(2)

It takes 2 It takes 2 As for As for each X each X

Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

10 95 50 45 45

50 50

50

50

50

50

50

50

50

45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20

15

45 10 10 10 10 10 35 35 40

20 40

40 40 100

35

20 20

20

20

20

20

20 80 80

80

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X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20

A(2)

B(1)

It takes 1 It takes 1 B for B for each X each X

Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

10 95 50 45 45

50 50

50

50

50

50

50

50

50

45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20

15

45 10 10 10 10 10 35 35 40

20 40

40 40 100

35

20 20

20

20

20

20

20 80 80

80

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X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20

A(2)

B(1)

C(3)

It takes 3 It takes 3 Cs for Cs for each A each A

Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

10 95 50 45 45

50 50

50

50

50

50

50

50

50

45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20

15

45 10 10 10 10 10 35 35 40

20 40

40 40 100

35

20 20

20

20

20

20

20 80 80

80

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X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20

A(2)

B(1)

C(3)

C(2)

It takes 2 It takes 2 Cs for Cs for each B each B

Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

10 95 50 45 45

50 50

50

50

50

50

50

50

50

45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20

15

45 10 10 10 10 10 35 35 40

20 40

40 40 100

35

20 20

20

20

20

20

20 80 80

80

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X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20

A(2)

B(1)

C(3)

C(2) D(5)

It takes 5 It takes 5 Ds for each Ds for each B B

Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

10 95 50 45 45

50 50

50

50

50

50

50

50

50

45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20

15

45 10 10 10 10 10 35 35 40

20 40

40 40 100

35

20 20

20

20

20

20

20 80 80

80

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Gross requirements

MRP Processing
Total expected demand

Scheduled receipts
Open orders scheduled to arrive

Planned on hand
Expected inventory on hand at the

beginning of each time period

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Net requirements

MRP Processing
Actual amount needed in each time period

Planned-order receipts
Quantity expected to received at the

beginning of the period

Offset by lead time

Planned-order releases
Planned amount to order in each time period

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MRP Outputs
Planned orders - schedule indicating the amount and

timing of future orders. planned orders.

Order releases - Authorization for the execution of Changes - revisions of due dates or order quantities,

or cancellations of orders.

Performance-control reports - used to track

problems like missed delivery dates and stock outs in order to evaluate system performance. inventory requirements.

Planning reports - are useful in forecasting future Exception reports - call attention to major

discrepancies such as late and overdue orders, excessive scrap rates etc.

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Updating the System

Regenerative system
Updates MRP records periodically

Net-change system
Updates MPR records continuously

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Other Considerations
Safety Stock
term used by inventory specialists to describe

a level of extra stock that is maintained below the cycle stock to buffer against stockouts. Safety Stock exists to counter uncertainties in supply and demand More complex for dependent demand items as compared to independent demand items Safety stock should be as minimum as possible

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Benefits of MRP
Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time

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Requirements of MRP
Computer and necessary software Accurate and up-to-date
Master Bills

schedules records

of materials

Inventory

Integrity of data

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