Materials Planning Functions

Dr. Mridula Sahay

Success of an operation department of any
organization is dependent upon an efficient
production plan. One of the key essential of a
production plan is material and manufacturing
planning system. Material requirement
planning plays a pivotal role in assembly-line
production. Material requirement planning is
a system based approach, which organizes all
required production material
 Material Planning Systems

• MRP translated a master schedule of final products into

time-phased net requirements for subassemblies,
assemblies, and parts
• First MRP systems evolved from closed-loop MRP
• Closed-loop MRP included production planning, master
scheduling, and capacity requirements
• In mid 1970’s, MRPII systems added functionality to
plan and execute all internal functions

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 An Overview of MRP

MRP uses the concept of backward scheduling to

determine how much and when to order and replenish
• The CPR module checks to make sure the scheduled
work load profile is feasible
• The MPS module contains the authorized schedule
• The BOM module contains the product structure for
each unique product
• MRP output includes schedules for all internal activities
and parts as well as orders for all supply chain items.

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Input/Output - MRP Process

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 Types of Demand

There are two types of demand.

• Independent Demand
– Is the demand for finished products
– Does not depend on the demand of other products
– Needs to be forecasted
• Dependent Demand
– Is the demand derived from finished products
– Is the demand for component parts based on the number of
end items being produced and is managed by the MRP
system

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 Objectives of MRP

• Determines the quantity and timing of

material requirements
– Determines what to order (checks BOM), how
much to order (lot size rules), when to place the
order (need date minus lead time), and when to
schedule delivery (on date needed)
• Maintain priorities
– In a changing environment, MRP reorganizes
priorities to keep plans current and viable
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Building a CD Cabinet With MRP

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 MRP Inputs - Authorized MPS

• From the authorized MPS, we calculate when we need to

have replenishment orders of CD cabinets; when we need a
new MPS order.
Table 14-1 Initial MPS Record for CD Cabinet
Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35
Projected Available: 80 55 30 5 -20
MPS

Table 14-2 Updated MPS Record for CD Cabinet

Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35
Projected Available: 80 55 30 5 80 50 20 90 60 25 90 55 20
MPS 100 100 100
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 MRP Inputs-Inventory Records

• System checks the inventory record for each BOM item to see if
inventory is available or if a replenishment order is needed to
build the cabinets.
Table 14-3 First Inventory Record for CD Cabinet
Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 -100
Planned Orders

Table 14-4 Updated Inventory Record for CD Cabinet

Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned Orders 100 100 100
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 MRP Inputs-Bills of Material

• A BOM lists all of the items

needed to produce one CD
cabinet
• The BOM is exactly like a
recipe for baking a cake
• The BOM’s must be
complete and accurate and
can only be changed by an
ECN
• MRP BOM’s are indented Indented BOM
bills of materials
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A Product Structure Tree

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 The MRP Explosion Process

Table 14-6 Updated Inventory Record for CD Cabinet

Item: CD Cabinet Parent: none
Lot size rule: L4L Children: Top, bottom, door, left side, right side, shelves, shelf supports
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned Orders: 100 100 100

Using this table and the product structure tree, we will work
through an example of how the MRP explosion process
calculates the requirements for building a CD cabinet. Next we
start with the cabinet top to show how MRP calculates the gross
requirements for this component.
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 Inventory Records - Components

• It was noted on the previous slide that the parent item (CD Cabinet) has
planned orders in periods 3, 6, and 9.
• Its children (top, bottom, door, left & right side, shelves, and supports) have
gross requirements in periods 3, 6, and 9.

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Inventory Records - Components

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Inventory Records– Components con’t

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Inventory Records– Components con’t

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Inventory Records – Remaining Components

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Inv. Records – Remaining Components con’t

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Inv. Records – Remaining Components con’t

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 MRP Action Notices

• Action Notices:
– Indicate items that need a production planner’s
attention
– Are created when a planned order needs to be
released, due dates need to be adjusted, or when
there is insufficient lead time for normal
replenishment
– Often require planners to rush or expedite orders

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 MRP Action Notices

• Action Bucket:
– Is the current period where we take actions such as
releasing, rescheduling, or canceling orders
– A positive quantity in current period’s planned order
row means that an order must be released

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Example Comparing Lot Size Rules: Three lot sizing rules used within MRP
Systems are: fixed order quantity (FOQ), lot for lot (L4L), and period order quantity
(POQ). Cost comparison is based on Inventory holding costs ($0.10/period) and
ordering cost ($25/order). In this example POQ is best at $133.50.

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 Rough Cut Capacity Example: The CRP module uses data from MRP. Calculate
workloads for critical work centers based on open shop orders and planned shop
orders. These shop orders are translated into hours of work by work center and
by time period.
Table 14-11 show items scheduled for work Center 101.

• Available = 4 machines x 2 shifts x 10 hours x 5 days x 0.85 utiliza- x 0.95 effi-

Capacity per shift per wk. tion ciency
• Available = 323.0 standard hours
Capacity
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 Workload Graph for Work Center 101: CRP enables a company to
evaluate both the feasibility of the MRP system and how well the company is
using its critical work centers.

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Resource Planning within OM: How it
all fits together
• Enterprise resource planning provides a common database for use by an
organization, its suppliers, and its customers.
• MRP reports are used by the production and inventory planners to (1)
generate purchasing requisitions and (2) develop schedules of different
activities to be done on the manufacturing floor.
• Techniques for sequencing activities are discussed in Chapter 15.
• The authorized MPS, the bill of material (BOM) file, and the inventory
records are inputs to the MRP system. It is critical that the MPS be feasible
and that the BOM file and the inventory records be accurate. This implies
that the time standards (Chapter 11) are valid and that cycle counting
(Chapter 12) be used to maintain inventory record accuracy. If not,
material is not ordered at the appropriate time in the right quantity.

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 Resource Planning Across the
Organization

• Since MRP determine the quantity and timing

of materials needed, it affects several
functional areas
– Accounting future material commitments based on
MRP output
– Marketing is primarily concerned with MPS as the
MRP reveals potential material shortages
– Information systems maintains the MRP and the
MPS

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 Example 2 - of MRP
• Next, it is going to be exposed the practical
case of the operating MRP, we will see again
the making up of the scissors; remember the
bill of materials (BOM) is the following:

Bill of materials
• To a better understanding of the MRP, imagine
you need 2 screws to make the scissor ,
therefore the bill of materials will be the
following
 The initial dates are the following:

Master Production Schedule (MPS)

• The Master Production Schedule shows we have to make 400 scissors
during the 3d week, in the 4th week 600, in the 6th week 800, and in the
7th week 300 scissors.
• We will name (GR) Gross Requirements to the demand of fabrication of
the products, the final products (in this case the scissors) correspond to
the quantity appeared in the MPS. To the intermediate products (in this
case the screws) you have to multiply the necessary quantity to make the
final product with its demand.

• Gross Requirements of the MRP

.
Inventory Master File
• The file indicated us that we have since the first week 550 scissors
in stock, also it indicates that the security stock do not have to be
less than 50 scissors.
• We will name Availability (A) to the initial stock of the final product
we have to satisfy the before mentioned necessities
• We Will name Security Stock (SS) to the final quantity of the final
product that cannot be use to satisfy the necessities.
• We will denominate Net Requirements (NR) to the quantity that we
really need to satisfy the Gross Requirements (GR), taking into
account the Availability (A) and the Security Stock (SS), the
calculations will be the following:
– If the availability is more than 0 , NR = GR-A+ SS
– If the availability is equal to 0 , NR = GR
Net Requirements of the MRP
Week 1: Gross Requirements are invalid, the availability is of 550 units, inside
the security stock is 50, and therefore if we do not have Gross
Requirements there are not also Net Requirements.
GR = 0
A= 550, SS = 50
NR = 0
Week 2: the same as the week 1, so we have an Availability of 550 units and
the Security Stock is 50 units.
Week 3: The Gross Requirements are 400 units, but we have an Availability of 550
inherited of the last week, so we can satisfy the 400 units with the 550 available
and we make sure that 50 we have 50 units for the Security Stock.
NR = GR- A + SS;
NR = 400- 550 + 50;
NR = - 100
It is important to realize that the result is negative, that means that we do not
need to make more scissors, because there are 150 available. 550-400 = 150
Week 4: We need to make 600 scissors but we only have 150 units that were left the
weeks before, so the Nets Requirements are:
NR = GR- A + SS;
NR= 600-150+50;
NR = 500
We have to make during the 4 th week 500 scissors; we ensure that the Security
Stock has 50 units.
Week 5: The GR are invalid, we do not need to fabricate more because the NR are also
invalid.
Week 6: The Gross Requirements are 800 units, the Availability is invalid so,
• NR= GR, NR=800
• We have to fabricate 800 units during the 6th week, and our security stock is 50
units.
Week 7: The same as in the week 6, our Net Requirements are 300 units,
• NR= GR, NR=300

Net Requirements of the MRP

 Lead Time - Emission of planned orders.
• The last step to apply is to convert the Net Requirements in Emission of Planned Orders
(EPO) by the lead time.
• We denominate Lead Time as the necessary time to convert the initial state to a final
state; we will see it better with some examples:
• The lead time can be the time processed by a machine and the time needs to acquire a
product, or the addition of both times. In the present case we see that in the 4 th week
we should have 500 scissors, so the lead time will be the time we need to make them, it
can be one week, 2 weeks. it is very important to maintain constantly the Lead time,
that is having an infinity capacity but by means of the MRPII we consider the capacity
and the loading of work to adjust it in the indicated lead time.
• The Emission of Planned Orders consists of indicating the quantity and the date in
which we have to launch the new warning of fabrication, the EPO is calculated
transferring the time into the quantities resulted from the calculation of the Net
Requirements, this process is defined by the lead time.
• We consider that the lead tie for the code SC is of two weeks; therefore the EPO will be
calculated transferring the time into 2 weeks the net necessities .
• Emission of Planned Orders
The final analysis would be that in the 2nd week we
need 500 units of row material in order to fabricate the
500 units in 2 weeks, so, in the 4th week we can satisfy
the Net Requirements. This 500 units are referred to
the screws , left and right side, but according to the Bill
of Materials to make 1 scissor we need, one left side,
one right side and two screws therefore to make 500
scissors we will need, 500 to the right side, 500 to the
left side and 1000 screws. In the second week to
ensure that the row material is going to be available we
have to explosion the MRP with the articles of the
lowest level.
 Explosion of the MRP
• The is just applying the before mentioned
steps to the articles that belong to the inferior
levels of the Bill of Materials but, taking into
account that now the Gross Requirements of
the articles are the Emissions of Planned
Orders of the highest level.
• According to what we have said, the calculation of the Gross Requirements articles
R, S, L will be making automatically

Explosion of the MRP according to the bill of material.

• Knowing that our stock has 700 units of the article L , 500
units of the article R, and 300 units of the article S which its
Security Stock has 125 units, we will calculate the Net
Requirements of this articles applying the two rules
mentioned before :
– If the availability is more than 0 , NR = GR-A+ SS
– If the availability is equal to 0 , NR = GR
Net Requirements according to the bill of material.
• The last step is the explosion of the MRP that
will be to apply the Lead time of each article
to calculate their EPO considering the
following Lead Time of the articles, the
explosion will be the following:
Emissions of Planned Orders according to the bill of material.
• With this first practical case, I have tried to
introduce the concept and operating of the MRP,
next it is explained the valorous outcome
information that the MRP give to us as well as
global summary.
• Once we have this concepts clear, I will explain
the operation of the MRP taking into account the
identification techniques, the variation of the
availability and also I will introduce the concept
of MRPII, but this will be later on.
 Information of the MRP

• The outcome information of the MRP is really important to the right

operations of the company. Mainly this information will be the following:
• Plan of production of each articles made specifying the quantities and
dates of the manufacture orders, to calculate the supply of the work in
each section of the plant and later to establish the detailed programme of
production.
• Plan of supply detailing dates and sizes of the orders to suppliers for all
those references that are acquired in the outside
• Report of Exceptions and Actions allows us to know the delayed orders
and its possible repercussions on the production planning, and about the
date of delivery of the orders. This report is important to take decisions
like the contract of the production, increase the permanent staff, duplicate
the turns, and negotiate with the clients the possible delays.
• We are going to analyze this outcome with the before example of the MRP
explosion to make scissors:
 Plan of production.

• The last file, shows the Emissions of Planned Orders

(EPO), here are indicated the quantities and the dates
in which the orders have to be launched. In this case, in
the second weeks we have to produce 500 scissors, we
have to be able to make 500 units in one week because
the lead time is just one week. At this moment the
works are programming.
Sales planning or Supply planning.

• For the article S, the emission of the planned orders, indicates that
we have to launch the fabrication order or the sell of 825 units of
screws during the first week. If we acquire them by a supplier, the
EPO shows that in this week we have to realise the order in order of
be given the product by the supplier the second week. If we do this,
we can cover the Net Requirements, the information let us
generating automate reports to our suppliers, and therefore they
can work avoiding the delays or the mistakes as well as having a
minimum stock.
 Report of Exceptions and Actions
Many times we can find that when exploring the MRP, some
EOP in past , for example:

• Emissions of Planned Orders

• In the present case, after realising the explosion we find
that to fulfill the plan of production we must sent the
Emissions of Planned Orders (EPO) last week, therefore the
own MRP will indicate us the possible problems to solve.