McGraw-Hill Education Copyright 2017 by McGraw-Hill Education. All rights reserved.

MATERIAL REQUIREMENTS
PLANNING
Chapter 9
Learning Objectives
1. Describe what material requirements planning
(MRP) is.
2. Understand how the MRP system is structured.
3. Analyze an MRP problem.
4. Evaluate and compare MRP lot-sizing techniques.

9- 2
Material Requirement Planning (MRP)

¨ Material Requirements Planning is a production

planning and inventory control system.
¨ MRP determines when and how many component
items are needed and schedules them to be ready
at that time, no earlier and no later.
¨ MRP is valuable for companies involved in assembly
operations and complex products (e.g., watches,
appliances, and trucks)

9- 3
Material Requirements Planning (MRP)

¨ The logic that ties production functions together from

a material planning and control view.
¨ A logical, easily understood approach to the
problem of managing the parts, components, and
materials needed to produce end items
¤ How much of each part to obtain?
¤ When to order or produce the parts?

¨ Dependent demand drives the MPR system

9- 4
 MRP System Structure

MRP
system
inputs

MRP
system
outputs
9- 5
 MRP System Structure
¨ MRP system has essentially three sources of
information:
1. Master production schedule states the number of
items to be produced during specific time periods
2. Bill of materials (BOM) identifies the specific
materials used to make each item and the correct
quantities of each
3. Inventory record file contains data such as number
of units on hand and on order

9- 6
 Master Production Scheduling

Aggregate plan shows

overall quantities to
produce – without
specifying type

Week

MPS shows quantities of

each type, with
information about the
production time frame
9- 7
Time Fences

Changes to Any changes

Limited to
production
changes to production
plan not
production plan allowed
allowed
plan
allowed

9- 8
Bill of Materials (BOM)
¨ Contains the complete product description, listing
the materials, parts, and components along with the
sequence in which the product is created
¨ Often called the product structure file or product
structure tree because it shows how a product is put
together

9- 9
 BOM Example
Product A Product A
– the end consists of 2
item B and 3 C

Product C consists
Product B of 2 F, 5 G and 4
consists of 1 H
D and 4 E

9- 10
Alternate BOM Structures

9- 11
BOM Hierarchy (Levels)
Higher levels (Iower
numbers) refer to end
products

Lower levels (higher numbers)

refer to components and raw
materials
9- 12
 Inventory Status Records

Basic
information
describing the
item

Information
about part
availability

Additional
information
that may be
useful

9- 13
MRP Explosion Process
The requirements for end items are retrieved from the
master schedule
• These are referred to as “gross requirements” by the MRP program

On-hand balance and schedule of orders are used to

calculate the “net requirements”

Net requirements data is used to calculate when

orders should be received to meet these requirements

Planned order releases are generated by offsetting

to allow for lead time

9- 14
MRP Explosion Process (continued)

Move to Level 1 items

Gross requirements for each level 1 item are

calculated from the planned-order release
schedule for the parents of each level 1 item

Net requirements, planned-order receipts, and

planned-order releases are calculated as
described in steps 2–4

Repeat for all items in bill of materials

9- 15
MRP Example – Ampere, Inc.
¨ Ampere, Inc., produces a line of electric meters installed in
residential buildings
¨ Meters are of two basic types for different voltage and
amperage ranges
¤ Some subassemblies are sold separately for repair or for
changeovers
¨ The problem is to determine a production schedule to
identify each item, the period it is needed, and the
appropriate quantities
¨ The schedule is then checked for feasibility, and the schedule
is modified if necessary.

9- 16
 Future Requirements – Meters A and B
and Subassembly D

Assume that required Trial Master Schedule

quantity must be available
during week 1 of each month

9- 17
Product Structure and Inventory Data

9- 18
MPR Record

¨ The data record contains:

¤ Gross requirements
¤ Scheduled receipts
¤ Projected available balance
¤ Net requirements
¤ Planned-order receipts
¤ Planned-order releases

Projected Projected Planned-

Gross Scheduled
available = available – + + order
requirements receiptst
balancet balancet-1 t
receiptst

9- 19
MRP Planning Schedule

Exhibit 9.13 9- 20
Example 9.1

From p. 284

9- 21
Example 9.1

Without an order here, inventory

will drop below the safety stock
To accommodate the lead time,
orders must be released ahead
of time
9- 22
Example 9.1 Error in book p.280
Weeks
1 2 3 4 5 6 7 8

Without an order here, inventory

will drop below the safety stock
To accommodate the lead time,
orders must be released ahead
of time 9- 23
Example 9.1 Error in book p.280

Total demand from planned

order releases of parent items
Weeks
1 2 3 4 5 6 7 8

Planned order release offset by

3 periods due to lead time
9- 24
Lot Sizing in MRP Systems
¨ Determination of
lot sizes in an Economic order
MRP system is a Lot-for-lot (L4L) quantity (EOQ)
complicated and
difficult problem
Lot Sizing
¨ Lot sizes - the Strategies
part quantities
issued in the
planned order Least total cost
receipt and (LTC) Least unit cost (LUC)
planned order
release sections
of an MRP
schedule

9- 25
Lot-for-Lot
Produces exactly
Sets planned orders what is needed each
to exactly match the week with none
net requirements carried over into
future periods

Does not take into

Minimizes carrying account setup costs or
cost capacity limitations.

9- 26
Economic Order Quantity

EOQ was not

Calculate reorder designed for a system
quantity based on with discrete time
EOQ
periods such as MRP

The lot sizes

generated by EOQ 2𝐷𝑆
do not always cover 𝐸𝑂𝑄 =
𝐻
the entire number of
periods
9- 27
Lot Sizing Example

¨ Suppose that we have the following Net Requirements

and the cost data for a product:
¤ Cost Per Item $10.00
¤ Order Cost (Setup Cost) $47.00
¤ Inventory Carrying Cost/week 0.5% (of the value of the
ending inventory)
¤ Assume 52 weeks in a year

Weekly Net Requirements

Wk 1 2 3 4 5 6 7 8
NR 50 60 70 60 95 75 60 55

9- 28
 Comparison – Lot-for-Lot and EOQ

Lot-
for-
Lot

EOQ

9- 29
Least Total Cost
¨ Least total cost method (LTC) - a dynamic lot-sizing
technique that calculates the order quantity by
comparing the carrying cost and the setup costs for
various lot sizes and then selects the lot in which
these are most nearly equal
¤ Lot sizes evaluated are designed to cover an increasing
amount of time (1 week, 2 weeks, etc.)
¨ Influenced by the length of the planning horizon

9- 30
Least Total Cost

9- 31
Least Unit Cost
¨ Least unit cost method - a dynamic lot-sizing
technique that adds ordering and inventory
carrying cost for each trial lot size and divides by
the number of units in each lot size, picking the lot
size with the lowest unit cost

9- 32
Least Unit Cost

9- 33
Choosing the Best Lot Size – Example
(continued)
¨ The total cost for the eight weeks:
¤ Lot-for-lot method - $376.00
¤ Economic order quantity - $171.05

¤ Least total cost - $140.50

¤ Least unit cost - $153.50

¨ The advantage of the least total cost method is that

it is a more complete analysis and would take into
account ordering or setup costs

9- 34
 MRP Matrix

MRP Matrix (MRP Record or MRP Process) consists of following 6 items.

¨ Gross Requirements: the total amount required for a particular item

¨ Scheduled Receipts: orders that have already released and are scheduled to
arrive as of the beginning of the period
¨ Projected available balance : amount of inventory that is expected at the end
of a period
Projected available balance (t)= projected available balance (t-1) + scheduled
receipts(t) + planned order receipts(t) – gross requirement(t)
Note: “safety stock” of an item will be retained throughout periods once it is
obtained.
¨ Net requirements: the amount needed when the projected available balance
plus the scheduled receipts in a period are not sufficient to cover the gross
requirement.
¨ Planned order receipts: the amount that will be ordered and when that amount
must be received
¨ Planed order releases: this determines when orders should be placed (i.e.,
released) so that they are received when needed
9- 35
 Exercise
Each unit of A is composed of one unit of B, two units of C, and one units of D. C
is composed of two units of D and three units of E. Item A, C, D, and E have
on-hand inventories of 20, 10, 20, and 10 units, respectively. Item B has a
scheduled receipt of 10 units in Period 1, and C has a scheduled receipt of
50 units in Period 1. Lot-for lot (L4L) is used for Item A and B. Item C
requires a minimum lot size of 50 units. D and E are required to be
purchased in multiples of 100 and 50, respectively. Lead times are one
period for Items A, B, and C, and two periods for Items D and E. The gross
requirements for A are 30 in Period 2, 30 in Period 5, and 40 in Period 8.
The company does not carry any safety stock for any item.
(a) Show the master production schedule.
(b) Draw the bill of materials (product structure tree)
(c) Show the inventory records file.
(d) Using the MRP matrix, find the necessary planned order releases for all
items.
(e) Show the planned order report

9- 36
 Extra MRP Example
Item On-Hand Lead Time (W eeks)
X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

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

9- 37
 Week: 1 2 3 4 5 6 7 8 9 10
X X
LT=2
Gross requirements
Scheduled receipts
95

Proj. avail. balance 50 50 50 50 50 50 50 50 50 0

On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 0
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
It takes On-
Proj. avail. balance
Net requirements
25 25 25 25 25 25 25 0
20
2 A’s for hand
25
Planned order receipt
Planner order release 20
20

each X C
LT=2
Gross requirements
Scheduled receipts
45 40

Proj. avail. balance 10 10 10 10

On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 0
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Week: 1 2 3 4 5 6 7 8 9 10
X X
LT=2
Gross requirements
Scheduled receipts
95

Proj. avail. balance 50 50 50 50 50 50 50 50 50 0

On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A(2) B(1) A
LT=3
Gross requirements
Scheduled receipts
90

Proj. avail. balance 75 75 75 75 75 75 75 0

On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
It takes On-
Proj. avail. balance
Net requirements
25 25 25 25 25 25 25 0
20
1 B for hand
25
Planned order receipt
Planner order release 20
20

each X C
LT=2
Gross requirements
Scheduled receipts
45 40

Proj. avail. balance 10 10 10 10

On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 0
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Week: 1 2 3 4 5 6 7 8 9 10
X X
LT=2
Gross requirements
Scheduled receipts
95

Proj. avail. balance 50 50 50 50 50 50 50 50 50 0

On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A(2) B(1) A
LT=3
Gross requirements
Scheduled receipts
90

Proj. avail. balance 75 75 75 75 75 75 75 0

On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) B
LT=1
Gross requirements
Scheduled receipts
45

Proj. avail. balance 25 25 25 25 25 25 25 0

On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
It takes 3 LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 0
C’s for On-
hand
Net requirements
Planned order receipt
35
35
40
40
each A 10
D
Planner order release
Gross requirements
35 40
100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 0
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Week: 1 2 3 4 5 6 7 8 9 10
X X
LT=2
Gross requirements
Scheduled receipts
95

Proj. avail. balance 50 50 50 50 50 50 50 50 50 0

On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A(2) B(1) A
LT=3
Gross requirements
Scheduled receipts
90

Proj. avail. balance 75 75 75 75 75 75 75 0

On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) B
LT=1
Gross requirements
Scheduled receipts
45

Proj. avail. balance 25 25 25 25 25 25 25 0

On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
It takes 2 LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 0
C’s for On-
hand
Net requirements
Planned order receipt
35
35
40
40
each B 10
D
Planner order release
Gross requirements
35 40
100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 0
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Week: 1 2 3 4 5 6 7 8 9 10
X X
LT=2
Gross requirements
Scheduled receipts
95

Proj. avail. balance 50 50 50 50 50 50 50 50 50 0

On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A(2) B(1) A
LT=3
Gross requirements
Scheduled receipts
90

Proj. avail. balance 75 75 75 75 75 75 75 0

On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) D(5) B
LT=1
Gross requirements
Scheduled receipts
45

Proj. avail. balance 25 25 25 25 25 25 25 0

On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
It takes 5 LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 0
D’s for each On-
hand
Net requirements
Planned order receipt
35
35
40
40
B 10
D
Planner order release
Gross requirements
35 40
100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 0
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Exercise: Now consider the extra demand for the
parts (in the name of spares)

Item On-Hand Lead Time (W eeks)

X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

Requirements include 95 units (80 firm orders and 15 forecast) of X in
week 10 plus the following spares:
Spares 1 2 3 4 5 6 7 8 9 10
A 12
B 7
C 10
D 15
9- 43
Where MRP Can Be Used and Benefits

Exhibit 9.2

9- 44
Question Bowl

Which type of industry has only “medium”

expected benefits from the use of MRP?
a. Assemble-to-stock
b. Make-to-stock
c. Assemble-to-order
d. Engineer-to-order
e. Process industries
Answer: e. Process industries

9- 45
 Question Bowl

To ensure good master scheduling, a master

scheduler must do which of the following?
a. Never lose sight of the aggregate plan
b. Identify and communicate all problems
c. Be involved with customer order promises
d. Be visible to all levels of management
e. All of the above
Answer: e. All of the above (Correct answer can also
include objectively trading off manufacturing, marketing,
and engineering conflicts and include all demands from
product sales, warehouse replenishment, spares, and
interplant requirements.) 9- 46
 Question Bowl

The purpose of a “time fence” is which of the

following?

a. Make sure the cows don’t get out of the barn

b. Control flow through the production system
c. Maximize sales to retailers
d. All of the above
e. None of the above
Answer: b. Control flow through the
production system
9- 47
Question Bowl

Which of the following is an objective under an

MRP system?

a. To improve customer service

b. Minimize inventory investment
c. Maximize production operating efficiency
d. All of the above
e. None of the above
Answer: d. All of the above

9- 48
Question Bowl

Which of the following is one of the three main

inputs into an MRP system?

a. BOM file
b. Exception report
c. Planning report
d. All of the above
e. None of the above
Answer: a. BOM file (Correct answer can
also include Master Schedule and Inventory
Records File.) 9- 49
Question Bowl

An MRP program accesses the status of a job according to specific

time periods called which of the following?
a. Peg record
b. Time fence
c. Time bucket
d. Time clock
e. None of the above

Answer: c. Time bucket

9- 50
 Question Bowl

In MRP, workload per work center can be determined. When the

work capacity is exceeded, which of the following options
can be implemented to correct the imbalance of workload?

a. Work overtime
b. Renegotiate the due date and reschedule
c. Subcontract to an outside shop
d. All of the above
e. None of the above

Answer: d. All of the above (Correct answer can also

include selecting an alternative work center and
rescheduling the work at a different time.)
9- 51
Question Bowl

Which of the following are reasons why a Lot-For-Lot (L4L)

method of lot sizing can be used in an MRP application?

a. Minimizes carrying costs

b. Sets planned orders to exactly match the net requirements
c. Produces exactly what is needed
d. Does not carry any units over into future periods
e. All of the above

Answer: e. All of the above

9- 52
Things to do!

¨ Read Chapter 9
¨ Understand Ch 9 Solved Problems
¨ Solve Problems: 9, 12, 17, 21, and extra problem
in the solutions.

9- 53