Material Requirements

Planning
Dr. Everette S. Gardner, Jr.
 End item
R

Time
LT LT

Component
R

Time
LT
Raw material

Time
LT

Order point system with dependent

demand
MRP 2
End item
R

Time

Component

Time
Raw material

Time

The MRP approach

MRP 3
 The simultaneous probability
problem
When components are ordered independently with an order
point system, the probability that all will be in stock at the
same time is much lower than the probabilities for individual
components

Computation:
Let Pn = Prob. that n components are
in stock simultaneously
Si = Prob. of stockout on one
order cycle for component i

Then
Pn = S 1 x S 2 x S 3 S n
MRP 4
 The simultaneous probability
problem (cont.)
Example:

End Item

1 2 3

S1 = .9 S2 = .9 S3 = .9

P3 = .9 x .9 x .9 =.729

= Prob. that all 3 components will be available at any given time

to
build the end item
MRP 5
Probabilities of simultaneous
availability of components
Number of Service level
component items 90% 95%
1 .900 .950
2 .810 .902
3 .729 .857
4 .656 .814
5 .590 .774
6 .531 .735
7 .478 .698
8 .430 .663
9 .387 .630
10 .348 .599
15 .206 .463
20 .121 .358
25 .071 .277
MRP 6
 Demand
forecasts and
customer orders

Aggregate
Product planning/
design master Inventory
changes scheduling transactions

Bill MRP Inventory

of system records
materials

Mfg. orders Capacity report

Purchase Performance/
orders exceptions

Detailed
Purchasing
scheduling
dept.
system

MRP inputs and outputs

MRP 7
 Product tree vs. indented parts
list
Product tree

A Level 0

B(2) C(4) Level 1

D(1) E(3) D(2) F(1) G(3) Level 2

MRP 8
 Product tree vs. indented parts
list (cont.)
Indented parts list

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

MRP 9
 Week
Lead
1 2 3 4 5 6 7 8 9 time
Gross Rqmts.
A 1
Planned order rls.
Gross Rqmts.
B Planned order rls. 2

Gross Rqmts.
C 3
Planned order rls.
Gross Rqmts.
3
D Planned order rls.

Gross Rqmts.
2
E Planned order rls.
Gross Rqmts.
3
F Planned order rls.
Gross Rqmts.
4
G Planned order rls.

Quiz: MRP plan to produce 10 units

of A due in week 9
MRP 10
Problems in requirements
computations

Product structure

Recurring requirements within the planning

horizon

Multilevel items

Rescheduling open orders

MRP 11
Product structure

Bills of material are hierarchical with distinct levels

To compute requirements, always proceed down bill of

materials, processing all requirements at one level
before starting another

MRP 12
Product structure (cont.)
Example:
Level Inventory O.H.
Truck 0 0

A. Transmission (1) 1 2

B. Gearbox (1) 2 15

C. Gear (1) 3 7

D. Forging Blank (1) 4 46

Suppose we are to produce 100 trucks. What are the net

requirements for each component?
MRP 13
Recurrence of requirements
within the planning horizon
The same item may be required for several different lots
within the planning horizon always process one lot
entirely, level by level, before starting the next.

Example: One lot of 12 trucks, followed by 2nd lot of

100
Lot 1 Lot 2
Level 1: Gross requirements 12 100

MRP 14
Multilevel items
The same item may appear at different levels on one or more
BOMs result is multiple retrievals of same record to update
system.

Examples:
X Y Z
1
A A
2
A
3
A
4

MRP 15
Multilevel items (cont.)
Solution: Low-level coding. Lowest level an item appears is
coded on inv. record. Processing delayed until that level
reached.

X Y Z
1

3
A A A A

MRP 16
 Rescheduling open orders
Tests for open order misalignment:
1. Are open orders scheduled for periods following the
period in which a net requirement appears?

2. Is an open order scheduled for a period in which

gross requirement inv. O. H. at end of preceding period?

3. Is lead-time sufficient?

MRP 17
 Rescheduling open orders
(cont.)
Example:
Week
1 2 3 4 5 6
Gross 30 5 10 10 10
requirements

Scheduled receipts 20 20

On hand 27 -3 12 12 22 12 2

Most MRP systems make such schedule changes

automatically.

MRP 18
Tactical questions in MRP

Regeneration vs. net change

Lot sizing

Safety stocks

MRP 19
 Regeneration vs. net change
Regeneration
Complete replanning of requirements and update of
inventory status for all items

High data processing efficiency

Usually initiated by weekly update of master

schedule

Net change
Daily update based on inventory transactions

More responsive to changing conditions

Requires more discipline in file maintenance

MRP 20
 Lot sizing implications in MRP
The load profiles at work centers in the system depend on
the lot sizing rules used
Load profiles determine:
undertime / overtime
leadtimes

Example:
Lot size Lot size
Pd. Demand Rule 1 Rule 2
1 5 5 20
2 15 15 0
3 15 15 20
4 5 5 0
(Assume 1 unit requires 1 machine hour.)
MRP 21
Lot sizing implications in MRP
(cont.)

20 20
Machine hrs.

15 15

10 10

5 5

0 0
1 2 3 4 1 2 3 4

Load profile Load profile

Rule 1 Rule 2

MRP 22
Lot sizing techniques used in
MRP systems

Lot-for-lot (L4L) most used

Economic order quantity (EOQ)

Period order quantity (POQ)

MRP 23
Lot-for-lot (L4L) example

Period 1 2 3 4 5 6 7 8 9 Total
Net rqmts. 35 10 40 20 5 10 30 150
Planned order 35 10 40 20 5 10 30 150

(Assume LT)

The L4L technique:

Minimizes carrying costs

Is certainly the best method for

- highly discontinuous demand
- expensive purchased items

MRP
MRP1.xls 24
EOQ example
Setup cost, S = $100
Unit price, C = $50
Holding costs, HR = .24 per annum
HP = .02 per period
Annual demand, D = 200
Q = (2DS / CHR)1/2 = 58

Period 1 2 3 4 5 6 7 8 9 10

Net rqmts. 35 10 40 20 5 10 30
Planned orders 58 58 58

Remnants 23 13 13 31 31 11 6 54 24 24

MRP 25
Period order quantity example
Technique:
1. Compute EOQ to determine number of orders per year

2. Divide number of periods in one year by number of orders to get

ordering interval

EOQ = 58
Number of periods in one year = 12
D = 200
200 / 58 = 3.4 (orders per year)
12 / 3.4 = 3.5 (ordering interval)

Period 1 2 3 4 5 6 7 8 9 Total
Net rqmts. 35 1 40 20 5 1 3 150
0 0 0
Planned orders 85 35 3
0
MRP 26
 Safety stocks in MRP systems
Need for safety stocks:
Variations in demand due to end-item forecast errors
and inventory errors
Variations in supply both lead-times and quantities

Since demand is not random, traditional statistical

techniques do not apply.

Options to provide safety factors:

Fixed quantity buffer stocks
Safety lead-time
Increase gross requirements

MRP 27
Safety stocks in MRP systems
(cont.)
Fixed quantity buffer stocks
Good rule of thumb: Set buffer = max. demand likely in a
single period
Never generate order solely to replenish buffer stocks

Safety time method

Simply order early
Distorts LTs and priorities
Better than buffer stocks for items with infrequent demand
Also better for purchases outside company

Increase in gross requirements

Should be done at end item level only so that
Components available in matched sets
Safety stocks are not duplicated at different levels
MRP 28