Materials Requirement Planning

(MRP)
 MRP
Computer-based information system for ordering and scheduling
of dependent-demand inventories, i.e. what is needed, how much
is needed, and when is it needed

– Dependent items – Demand for items that are sub-

assemblies, parts or raw materials to be used in the
production of finished goods.

– Independent items – Finished products

MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
 MRP Inputs
• Master Production Schedule (MPS) – States which end
items are to be produced, when they are needed, and in
what quantities

• Bill of Materials (BOM) – a listing of all of the raw

materials, parts, and sub-assemblies needed to produce
one unit of a product

• Beginning Inventory

• Economic Order Quantity

 MRP - Terminologies

• Projected requirements
• Stock on hand
• Scheduled receipts (receipts)
• Planned order release
• Economic order quantity
Problem
Consider the manufacture of a toy. The master production schedule to
manufacture the toy is given in the following table.
Master Production Schedule
Week 1 2 3 4 5 6 7 8
Demand 200 - 100 175 300 200 - 250

The bill of materials structure is given in the following figure

The details of BOM along with EOQ and stock on hand for the final
product and subassemblies are shown in the following table
Details of BOM
Part Order No. of Lead Stock on
Required Quantity Units Time Hand
(Week)
A 350 1 2 200
B 450 1 1 400
C 400 1 1 375
D 375 1 1 250
E 400 1 2 425

Complete the material requirements plan for the main product A as

well as for the subassemblies B, C, D and E
A (EOQ – 350, LT – 2)

Period 0 1 2 3 4 5 6 7 8
Projected
- 200 - 100 175 300 200 - 250
Requirement
Receipts - - - 350 - 350 350 - -

Stock on Hand 200 0 0 250 75 125 275 275 25

Planned order
- 350 - 350 350 - - - -
release
B (EOQ – 450, LT – 1)

Period 0 1 2 3 4 5 6 7 8
Projected
- 350 - 350 350 - - - -
Requirement
Receipts - - - 450 450 - - - -

Stock on Hand 400 50 50 150 250 250 250 250 250

Planned order
- - 450 450 - - - - -
release
C (EOQ – 400, LT – 1)

Period 0 1 2 3 4 5 6 7 8
Projected
- 350 - 350 350 - - - -
Requirement
Receipts - - - 400 400 - - - -

Stock on Hand 375 25 25 75 125 125 125 125 125

Planned order
- - 400 400 - - - - -
release
D (EOQ – 375, LT – 1)

Period 0 1 2 3 4 5 6 7 8
Projected
- - 400 400 - - - - -
Requirement
Receipts - - 375 375 - - - - -

Stock on Hand 250 250 225 200 200 200 200 200 200

Planned order
- 375 375 - - - - - -
release
E (EOQ – 400, LT – 2)

Period 0 1 2 3 4 5 6 7 8
Projected
- - 400 400 - - - -
Requirement
Receipts - - - 400 - - - -

Stock on Hand 425 425 25 25 25 25 25 25 25

Planned order
- 400 - - - - - - -
release
Practice problem
A firm producing fire extinguisher has the following master production schedule
(MPS).
Master Production Schedule
Week 1 2 3 4 5 6 7 8
Demand 100 - 150 140 200 140 - 300
The bill of materials structure is given in the following figure. Each fire
extinguisher has a cylinder, a valve assembly and two handle bars. Each valve
assembly requires a valve and a valve housing.
The details of Bill of Materials along with economic order quantity and stock
on hand for the final product and subassemblies are shown below.

Details of BOM
Parts Required Order No. of Lead Time Stock on
Quantity Units (Week) Hand
Fire Extinguisher 300 1 1 150
Cylinder 450 1 2 350
Valve assemblies 400 1 1 325
Valve 350 1 1 150
Valve housing 450 1 1 350
Handle bars 700 2 1 650

Complete the material requirements plan for the fire extinguisher, cylinder, valve
assembly, valve, valve housing and handle bars and show what quantities of
orders must be released and when they must be released in order to satisfy the
MPS.
Fire Extinguisher (EOQ – 300, LT – 1 week)

Period 0 1 2 3 4 5 6 7 8
Projected
- 100 - 150 140 200 140 - 300
Requirement
Receipts - - - 300 - 300 - - 300

Stock on Hand 150 50 50 200 60 160 20 20 20

Planned order
- - 300 - 300 - - 300 -
release
Cylinder (EOQ – 450, LT – 2 weeks)

Period 0 1 2 3 4 5 6 7 8
Projected
- - 300 - 300 - - 300 -
Requirement
Receipts - - - - 450 - - 450 -

Stock on Hand 350 350 50 50 200 200 200 350 350

Planned order
- - 450 - - 450 - - -
release
Valve assembly (EOQ – 400, LT – 1 week)

Period 0 1 2 3 4 5 6 7 8
Projected
- - 300 - 300 - - 300 -
Requirement
Receipts - - - - 400 - - 400 -

Stock on Hand 325 325 25 25 125 125 125 225 225

Planned order
- - - 400 - - 400 - -
release
Valve (EOQ – 350, LT – 1 week)

Period 0 1 2 3 4 5 6 7 8
Projected
- - - 400 - - 400 - -
Requirement
Receipts - - - 350 - - 350 - -

Stock on Hand 150 150 150 100 100 100 50 50 50

Planned order
- - 350 - - 350 - - -
release
Valve Housing (EOQ – 450, LT – 1 week)

Period 0 1 2 3 4 5 6 7 8
Projected
- - - 400 - - 400 - -
Requirement
Receipts - - - 450 - - - - -

Stock on Hand 350 350 350 400 400 400 0 0 0

Planned order
- - 450 - - - - - -
release
Handle Bar (EOQ – 700, LT – 1 week)

Period 0 1 2 3 4 5 6 7 8
Projected
- - 600 - 600 - - 600 -
Requirement
Receipts - - - - 700 - - 700 -

Stock on Hand 650 650 50 50 150 150 150 250 250

Planned order
- - - 700 - - 700 - -
release
 MRP – Lot Sizing
• Planned order release - made by considering the relative difference between
the ordering cost per order, and carrying cost per unit per period, it may
result in minimum (total) inventory cost.

• Different methods which are available to determine effective lot size in

MRP,
- EOQ method
- Minimum Cost per Period (MCP) method
- Period Order Quantity (POQ) method
- Least Unit Cost (LUC) method
- Part Period Balancing (PPB) method
Illustration: Period
Projected
Requirement
Consider an item that has 0 -
projected requirements as shown 1 30
in Table and beginning inventory 2 50

of 30 units. The carrying cost per 3 40

unit per week is Rs. 2.50. The 4 -

5 15
cost per set-up is Rs. 250. The
6 20
lead time to assemble the item is
7 20
one week.
8 -

Develop a solution and calculate 9 10

total relevant cost using EOQ, 10 -

11 15
MCP methods.
12 50
 EOQ Illustration:

Given:
• Initial on hand = 30 units
• The Average demand/week (D) = 20.83 units/week
(Average of 12 weeks projected requirements) = 21 units/week (Approx.)

• Carrying cost per unit per week (𝐶𝑐 ) = Rs. 2.50

• Set-up cost per setup (𝐶𝑜 ) = Rs. 250

2 𝐶0 𝐷 2 ∗250∗21
𝐸𝑂𝑄 = = = 64.8 = 65 (Approx.)
𝐶𝑐 2.50
 MRP Calculations as per EOQ method

Period 0 1 2 3 4 5 6 7 8 9 10 11 12
Projected
- 30 50 40 - 15 20 20 - 10 - 15 50
Requirement
Receipts - - 65 65 - - - 65 - - - - 65
Stock on
30 0 15 40 40 25 5 50 50 40 40 25 40
Hand
Planned
- 65 65 - - - 65 - - - - 65 -
order release

The total ordering cost = (Rs. 250*4) = Rs. 1000.00

Total carrying cost = (Rs. 370*2.50) = Rs. 925.00

Total Inventory cost = Rs. 1925.00

MCP Illustration:
Steps Involved:

1. Calculate cumulative cost for each periods

2. Calculate cost per period (dividing the cumulative cost
by the number of periods in the periods combination).
3. Identify the combination which has minimum cost per
period. (cost per period goes on decreasing up to a
certain periods combination and then it starts
increasing. The period combination just prior to the
increase in the average cost is selected as the desirable
periods combination).
4. Make a planned order release based on the cumulative
projected requirements for the identified combination.
5. Repeat the above procedure for the left out
combinations.
 MCP Cont.…

Trial Lot Size

Cost Per
Periods ( Cumulative Cumulative cost
Period
Combined net (Rs.)
(Rs.)
Requirement)
2 50 250 250.00

2,3 90 250 + (40*2.5*1) = 350 175.00

2,3,4 90 250 + (40*2.5*1) + (0*2.5*2) = 350 116.67

250 + (40*2.5*1) + (0*2.5*2) +
2,3,4,5 105 115.65
(15*2.5*3) = 462.5
250 + (40*2.5*1) + (0*2.5*2) +
2,3,4,5,6 125 132.50
(15*2.5*3) + (20*2.5*4) = 662.5

• Combine periods 2,3,4 and 5 because the corresponding cost

per period is minimum
 MCP Cont.…
Trial Lot Size
Cost Per
Periods ( Cumulative Cumulative cost
Period
Combined net (Rs.)
(Rs.)
Requirement)
6 20 250 250.00

6,7 40 250 + (20*2.5*1) = 300 150.00

250 + (20*2.5*1) + (0*2.5*2) =
6,7,8 40 100.00
300
250 + (20*2.5*1) + (0*2.5*2) +
6,7,8,9 50 93.75
(10*2.5*3) = 375
250 + (20*2.5*1) + (0*2.5*2) +
6,7,8,9,10 50 75.00
(10*2.5*3) + (0*2.5*4)= 375
250 + (20*2.5*1) + (0*2.5*2) +
6,7,8,9,10,11 65 (10*2.5*3) + (0*2.5*4) + 93.75
(15*2.5*5) = 562.5

• Combine periods 6,7,8,9 and 10 because the corresponding

cost per period is minimum
 MCP Cont.…
Trial Lot Size
Cost Per
Periods ( Cumulative Cumulative cost
Period
Combined net (Rs.)
(Rs.)
Requirement)
11 15 250 250.00

11,12 65 250 + (50*2.5*1) = 375 187.50

• Combine periods 11 and 12 since period 12 is the last period

• Based on the periods combinations, the final planned order release is

made for
105 units - period 1
50 units - period 5
65 units - period 10
 MRP Calculations as per MCP method

Period 0 1 2 3 4 5 6 7 8 9 10 11 12

Projected
- 30 50 40 - 15 20 20 - 10 - 15 50
Requirement
Receipts - - 105 - - - 50 - - - - 65 -
Stock on
30 0 55 15 15 0 30 10 10 0 0 50 0
Hand
Planned
- 105 - - - 50 - - - - 65 - -
order release

Total Inventory cost = Rs. 1212.50