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Chapter 16
Materials Requirements Planning

OBJECTIVES

Material Requirements Planning (MRP) MRP Logic and Product Structure Trees Time Fences MRP Example MRP II and Lot Sizing

Material Requirements Planning

Materials requirements planning (MRP) is a means for determining the number of parts, components, and materials needed to produce a product MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced Dependent demand drives MRP MRP is a software system

Example of MRP Logic and Product Structure Tree

Given the product structure tree for A and the lead time and demand information below, provide a materials requirements plan that defines the number of units of each component and when they will be needed
Product Structure Tree for Assembly A Lead Times A 1 day B 2 days C 1 day D 3 days E 4 days F 1 day

A B(4) D(2) E(1) D(3) C(2) F(2)

Total Unit Demand Day 10 50 A Day 8 20 B (Spares) Day 6 15 D (Spares)

First, the number of units of A are scheduled backwards to allow for their lead time. So, in the materials requirement plan below, we have to place an order for 50 units of A on the 9th day to receive them on day 10.
Day: A Required Order Placem ent 1 2 3 4 5 6 7 8 9 50 10 50

LT = 1 day

Next, we need to start scheduling the components that make up A. In the case of component B we need 4 Bs for each A. Since we need 50 As, that means 200 Bs. And again, we back the schedule up for the necessary 2 days of lead time.
Day: A B R e q u ire d O rd e r P la c e m e n t R e q u ire d O rd e r P la c e m e n t 20 200 20 50 200 1 2 3 4 5 6 7 8 9 10 50

LT = 2 A B(4) D(2) E(1) D(3) C(2) F(2)

Spares
4x50=200

Finally, repeating the process for all components, we have the final materials requirements plan:
Day: A LT=1 B LT=2 C LT=1 D LT=3 E LT=4 F LT=1 Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement 1 2 3 4 5 6 7 8 9 50 200 100 55 55 20 200 200 200 400 300 20 200 400 100 300 10 50

20 20 200

A
Part D: Day 6

B(4) D(2) E(1) D(3)

C(2) F(2)

40 + 15 spares

The McGraw-Hill Companies, Inc., 2001

Master Production Schedule (MPS)

Time-phased

plan specifying how many and when the firm plans to build each end item

Aggregate Plan (Product Groups)

MPS (Specific End Items)

Types of Time Fences

Frozen

No schedule changes allowed within this window

Moderately Firm

Specific changes allowed within product groups as long as parts are available

Flexible

Significant variation allowed as long as overall capacity requirements remain at the same

levels

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Example of Time Fences

Frozen
Capacity Firm Customer Orders Moderately Firm

Exhibit 15.5

Flexible
Forecast and available capacity

15 Weeks

26

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Material Requirements Planning System

Based on a master production schedule, a material requirements planning system:

Creates schedules identifying the specific parts and materials required to produce end items Determines exact unit numbers needed
Determines the dates when orders for those materials should be released, based on lead times

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Firm orders from known customers

Aggregate product plan

Forecasts of demand from random customers

Engineering design changes

Master production Schedule (MPS)

Inventory transactions
From Exhibit 15.6

Bill of material file

Material planning (MRP computer program)

Inventory record file

Secondary reports
Primary reports Planned order schedule for inventory and production control Exception reports Planning reports Reports for performance control
The McGraw-Hill Companies, Inc., 2004

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A Complete Product Description

Bill of Materials (BOM) File

Materials Parts Components

Production sequence
Modular BOM

Subassemblies

Super BOM

Fractional options

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Inventory Records File

Each

inventory item carried as a separate file

Status according to time buckets

Pegging

Identify each parent item that created demand

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Primary MRP Reports

Planned orders to be released at a future time Order release notices to execute the planned orders Changes in due dates of open orders due to rescheduling Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule

Inventory status data

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Secondary MRP Reports

Planning reports, for example, forecasting inventory requirements over a period of time Performance reports used to determine agreement between actual and programmed usage and costs Exception reports used to point out serious discrepancies, such as late or overdue orders

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Additional MRP Scheduling Terminology

Gross

Requirements

Scheduled
Projected Net

receipts

available balance

requirements order receipt order release

Planned Planned

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MRP Example
X A(2) C(3) C(2) B(1) 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 in week 10

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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 1 2 3 4 5 6 7 8 9 10 95 50 45 45

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

50 50

50

50

50

50

50

50

50

A(2)

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

15

It takes 2 As for each X

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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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 1 2 3 4 5 6 7 8 9 10 95 50 45 45

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

50 50

50

50

50

50

50

50

50

A(2)

B(1)

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

15

It takes 1 B for each X

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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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 1 2 3 4 5 6 7 8 9 10 95 50 45 45

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

50 50

50

50

50

50

50

50

50

A(2)

B(1)

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

15

C(3)

It takes 3 Cs for each A

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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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 1 2 3 4 5 6 7 8 9 10 95 50 45 45

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

50 50

50

50

50

50

50

50

50

A(2)

B(1)

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

15

C(3)

C(2)

It takes 2 Cs for each B

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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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 1 2 3 4 5 6 7 8 9 10 95 50 45 45

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

50 50

50

50

50

50

50

50

50

A(2)

B(1)

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

15

C(3)

C(2)

D(5)

It takes 5 Ds for each B

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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Closed Loop MRP

Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning

No Feedback Realistic?

Feedback

Yes
Execute: Capacity Plans Material Plans

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Manufacturing Resource Planning (MRP II)

Goal: Plan and monitor all resources of a manufacturing firm (closed loop):

manufacturing

marketing
finance engineering

Simulate the manufacturing system

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Lot Sizing in MRP Programs

Lot-for-lot Economic Least Least

(L4L)

order quantity (EOQ)

total cost (LTC)

unit cost (LUC)

one to use?

Which

The one that is least costly!

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Question Bowl
Which type of industry has only medium expected benefits from the use of MRP?
a.
b. c. d. e.

Assemble-to-stock
Fabricate-to-stock Assemble-to-order Fabricate-to-order Process

Answer: e. Process

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Question Bowl
To ensure good master scheduling, a master scheduler must do which of the following? Never lose sight of the aggregate plan Identify and communicate all problems Be involved with customer order promising Be visible to all levels of management All of the above

a.

b.
c. d.

e.

Answer: e. All of the above (Correct answer can also include objectively trade off manufacturing, marketing, and engineering conflicts and include all demands from product sales, warehouse replenishment, spares, and interplant requirements.)

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Question Bowl
The purpose of a time fence is which of the following?
a. b. c. d. e.

Make sure the cows dont get out of the barn Control flow through the production system Maximize sales to retailers

All of the above

None of the above

Answer: b. Control flow through the production system

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Question Bowl
Which of the following is an objective under an MRP system?
a.
b. c.

To improve customer service

Minimize inventory investment Maximize production operating efficiency

d.
e.

All of the above

None of the above

Answer: d. All of the above

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Question Bowl
Which of the following is one of the three main inputs into an MRP system? BOM file Exception report Planning report All of the above None of the above Answer: a. BOM file (Correct answer can also include Master Schedule and Inventory Records File.)

a. b. c.

d.
e.

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Question Bowl
An MRP program accesses the status of a job according to specific time periods called which

of the following?
a. b. c. d.

Peg record Time fence

Time bucket
Time clock

e.

None of the above

Answer: c. Time bucket

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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.)

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Question Bowl
Which of the following are reasons why a Lot-ForLot (L4L) method of lot sizing can be used in an MRP application?
a. b.

Minimizes carrying costs Sets planned orders to exactly match the net requirements Produces exactly what is needed Does not carry any units over into future periods All of the above

c. d. e.

Answer: e. All of the above