Material Requirements Planning (MRP)

Outline
DEPENDENT INVENTORY MODEL
REQUIREMENTS
Master Production Schedule
Bills of Materials
Accurate Inventory records
Purchase Orders Outstanding
Lead Times for Each Component
MRP STRUCTURE
 Collins Industries
 Largest manufacturer of ambulances in the world
 International competitor
 12 major ambulance designs
 18,000 different inventory items
 6,000 manufactured parts
 12,000 purchased parts
 MRP: IBM’s MAPICS
 Collins Industries
 Collins requires:
 Material plan must meet both the requirements of the master
schedule and the capabilities of the production facility
 Plan must be executed as designed
 Effective “time-phased” deliveries, consignments, and
constant review of purchase methods
 Maintenance of record integrity
 Material Requirements Planning
(MRP)
 Manufacturing computer information system
 Determines quantity & timing of dependent demand
items

1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned
© 1995Order Receipts 7
Corel Order Releases
Planned 7
Corp.
 MRP: Types of Items

 Independent demand
items; complete product
ready for use

 Dependent demand
items; sub-assemblies,
components
 Service Level & ROP

Items with dependent demand should not

be planned using ROP …..Except…
Pareto curve for components in an
assembly
Cost. The item represents a small fraction of the total value
of the assembly.
Volume. The item is used in large quantities.
Commonality. The item is used on several different
assemblies.
Non-critical. Alternative items can be used.
Availability. The item is available from a variety of sources
at short notice.
Such items are often classed as
‘C’ type
 MRP Requirements

 Computer system
 Mainly discrete products
 Accurate bill-of-material
 Accurate inventory status
 99% inventory accuracy
 Stable lead times
© 1984-1994 T/Maker Co.
 MRP Benefits

 Increased customer satisfaction due to meeting

delivery schedules
 Faster response to market changes
 Improved labor & equipment utilization
 Better inventory planning & scheduling
 Reduced inventory levels without reduced customer
service
 Structure of the MRP System

BOM Master Production

Schedule
MRP by Period Report

MRP by date report

Lead Times
Planned order report

(Item Master File)

Purchase advice

Exception report

Inventory Data
Exception report
MRP planning
programs
(computer and
software)
Purchasing data
 Static Data Files Dynamic Data Files
Master files
 Master files
 Customer master Information associated with a particular customer
(name, address, etc.).
 Supplier master. Information associated with a particular supplier
(name, address, etc.).
 Item master This is perhaps the key file in the entire system. It
defines each item that is made, sold or purchased by the organization.
Information stored on this file includes descriptions, the batch
quantity for manufacture and the lead time for supply.
 Routing master This defines the process by which a particular
component is manufactured. It defines the equipment needed and
time taken at every operation. This file also provides textual
information specifying exactly how an item will be produced.
 Bill of material (BOM) Relationship between different items. That is
to say, it defines which items are required to assemble another
 The Planning Process
Aggregate production plan
Change
production plan?
Master production
schedule
Change master
Change requirements? production schedule?
Material requirements plan

Change capacity?
Detail capacity plan
Is capacity Is
Realistic plan being execution
No meeting
Yes met?
the plan?
Execute capacity plans

Execute material plans

 Inputs to the Production Plan

Marketing
Production Customer Finance
Capacity Demand Cash Flow
Inventory

Aggregate Human
Procurement
Production Plan Resources
Supplier
Manpower
Performance
Planning

Management Engineering
Return on Design
Investment Completion
Capital
 MRP and The Production Planning Process

Aggregate
Forecast & Resource
Production
Firm Orders Availability
Planning

Material Master
Requirements Production
Planning Scheduling

No, modify CRP, MRP, or MPS

Capacity Shop
Requirements Realistic? Floor
Planning Yes Schedules
 MRP INPUT DATA

MRP modeling requires that the operations manager

know the:
master production schedule (MPS)
specifications or bills-of-material (BOM)
inventory availability
purchase orders outstanding
lead times
 MRP Systems - Input and Output

Master
Production
Schedule
Bill of Inventory
Materials Status
Material
Requirements
Planning System
Purchasing
Item Master
Data
Planned Order
& Other Reports
 Inventory Classifications

Inventory

Process Number Demand

Other
stage & Value Type

Raw Material A Items

Independent Maintenance
WIP B Items
Dependent Operating
Finished Goods C Items
 WHY INVENTORIES ARE CENTRAL?

 Purpose of any production system is creation of

finished product right on time at right place in right
quantity at low cost with best quality
 Inventories are finished products created earlier
than their demand time
Dependent versus Independent Demand

Materials With Materials With

Item
Independent Demand Dependent Demand

Demand
Company Customers Parent Items
Source
Material
Finished Goods WIP & Raw Materials
Type
Method of
Forecast & Booked Calculated
Estimating
Customer Orders
Demand
Planning
EOQ & ROP MRP
Method
Typical Focus of the Master Production Schedule
Assemble to Order Stock to Forecast
Make to Order or Forecast
(Process Focus) (Repetitive) (Product Focus)
Schedule finished
Number of end product
items

Typical focus of the

master production Schedule
schedule modules
Schedule
orders

Number of
inputs
Print shop Motorcycles, autos, Steel, Pepsi,
Examples: Machine shop TVs, fast-food Bread, Light
Fine dining restaurant restaurant bulbs, Paper
Aggregate Production Plan Leads to Master Production Schedule (MPS)

Months January February

Aggregate Production Plan
(shows the total quantity of 1,500 1,200
amplifiers
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
(Shows the specific type
and quantity of amplifier to
be produced
240 watt amplifier 100 100 100 100

150 watt amplifier 500 500 450 450

75 watt amplifier 300 100

 Master Production Schedule
 Shows items to be produced
 End item, customer order, module
 Derived from aggregate plan
Example

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Derivation of Master Schedule
A and S are End Items

B and C are used to make A

and S

A S

B C B C
 Derivation of Master Schedule
A S

B C B C Master
Lead time = 4 for A
schedule for S
Lead time = 6 for S sold directly
Master schedule for A
Master schedule for S
5 6 7 8 9 10 11
8 9 10 11 12 13 1 2 3
Periods 40 50 15 40 20 30 10 10

A is required S is required
Week 6 : 40 Week 9 : 40
8 : 50 11 : 20
11 : 15 13 : 30
 Derivation of Master Schedule
A S

B C B C Master
schedule for S
sold directly
5 6 7 8 9 10 11
8 9 10 11 12 13 1 2 3
Periods 40 50 15 40 20 30 10 10

Periods 1 2 3 4 5 6 7 8
Therefore, these
are the gross
Gross requirements: B
10 40+10
= 50 40 50 20 15+30
= 45 requirements for B

B Requirements
 Bill-of-Material (BOM)

 List of components & quantities needed to make

product
 Provides product structure (tree)
 Parents: Items above given level
 Children: Items below given level

 Shows low-level coding

 Lowest level in structure item occurs
 Top level is 0; next level is 1 etc.
 Bill-of-Material
Product Structure Tree

Bicycle(1)
P/N 1000

Handle Bars (1) Frame Assembly (1)

P/N 1001 P/N 1002

Wheels (2) Frame (1)

P/N 1003 P/N 1004
 Special Bills-of-Material
 Modular bills
 Modules are final components used to make assemble-to-
stock end items
 Planning bills
 Used to assign artificial parent
 Reduces number of items scheduled

 Phantom bills
 Used for subassemblies that exist temporarily
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
Product Structure for “Awesome” A
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8

LEAD TIMES
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 Time-Phased Product Structure

Must have D and E completed

here so production can begin
Start production of on B
D 1 week
D 2 weeks to
produce
2 weeks B
E
A
2 weeks
E 1 week
2 weeks 1 week
G 3 weeks C
1 week F
D
1 2 3 4 5 6 7 8
 MRP Table Parameters
 GR(t) : gross requirements
total demand in a period t
SR(t) :
expected receipt of the item in period t from
previous (outstanding) orders
OHI(t) : on-hand inventory at beginning of t
NR (t) : net requirements ; NR(t) = GR(t)-SR(t)-OHI(t)
POT(t): planned order receipts
POR(t): planned order release
 MRP TABLE STRUCTURE

WEEKS 1 2 3 4 5 6 7 8 9 10

GR

SR

OHI

NR

POT

POR
 MRP Table Calculations
 OHI(t) : on-hand inventory

OHI(t) = 0; if GR(t)-{SR(t)+OHI(t)} > 0

= {SR(t)+OHI(t)} -GR(t); otherwise
 MRP Table Calculations
 NR(t) : net requirements is expected shortage

NR(t) = 0; if {SR(t)+OHI(t)}-GR(t) > 0

=GR(t)-{SR(t)+OHI(t)}; otherwise
 MRP Table Calculations
 POR(t) : planned order release
issue an order of manufacturing/buying
according to NR(t+L)

where L = lead time of order replenishment

 MRP Table Calculations
 POT(t) : planned order receipt
receiving the consignment as a result of POR
made in period (t+L)
Gross Material Requirements Plan for 50 “Awesome A”
Speaker Kits
MRP CALCULATIONS