McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 16

Materials Requirements Planning

 18-3

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
 18-4

Example of MRP Logic and Product Structure Tree

Given
Giventhe
theproduct
productstructure
structuretree
treefor
for“A”
“A”and
andthe
thelead
leadtime
timeand
and
demand
demandinformation
informationbelow,
below,provide
provideaamaterials
materialsrequirements
requirements
plan
planthat
thatdefines
definesthe
thenumber
numberof ofunits
unitsof
ofeach
eachcomponent
componentandand
when
whenthey
theywill
willbe
beneeded
needed
Product Structure Tree for Assembly A Lead Times
A 1 day
A B 2 days
C 1 day
D 3 days
E 4 days
B(4) C(2) F 1 day

Total Unit Demand

Day 10 50 A
D(2) E(1) D(3) F(2) Day 8 20 B (Spares)
Day 6 15 D (Spares)
 18-5

First,
First, the
the number
number of of units
units of
of “A”
“A” are
are scheduled
scheduled
backwards
backwards to to allow
allow for
for their
their lead
lead time.
time. So,
So, in
in the
the
materials
materials requirement
requirement plan plan below,
below, wewe have
have to
to place
place
an
an order
order forfor 50
50 units
units of
of “A”
“A” on
on the
the 99th day
th
day to
to receive
receive
them
them onon day
day 10.
10.

Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50

LT = 1 day
 18-6

Next,
Next,we
weneed
needto
tostart
startscheduling
schedulingthe
thecomponents
componentsthat
thatmake
makeupup
“A”.
“A”. In
Inthe
thecase
caseof
ofcomponent
component“B”“B”we
weneed
need44B’s
B’sfor
foreach
eachA.
A.
Since
Sincewe
weneed
need50
50A’s,
A’s,that
thatmeans
means200
200B’s.
B’s. And
Andagain,
again,weweback
back
the
theschedule
scheduleupupfor
forthe
thenecessary
necessary22days
daysof
oflead
leadtime.
time.
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
B Required 20 200
Order Placement 20 200

LT = 2
Spares
A 4x50=200

B(4) C(2)

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

 18-7

Finally,
Finally,repeating
repeatingthe
theprocess
processfor
forall
allcomponents,
components,we
wehave
havethe
the
final
finalmaterials
materialsrequirements
requirementsplan:
plan:
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200

A
Part D: Day 6
B(4) C(2) 40 + 15 spares

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

 18-8

Master Production Scheduling (MPS)

• Time-phased plan specifying how

many and when the firm plans to
build each end item
Aggregate
Aggregate Plan
Plan
(Product
(Product Groups)
Groups)

MPS
(Specific End Items)
 18-9

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
 18-10

Exhibit
Exhibit15.5
15.5
Example of Time Fences

Moderately
Frozen Firm Flexible

Capacity
Forecast and available
capacity
Firm Customer Orders

8 15 26

Weeks
 18-11

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
 18-12

Aggregate Forecasts
Firm orders product of demand
from known
plan from random
customers
customers

Engineering Master production

Schedule (MPS) Inventory
design
transactions
changes

Material
planning
Bill of (MRP Inventory
material computer record file
file program)
Secondary reports
Primary reports
Exception reports
Planned order schedule for Planning reports
inventory and production Reports for performance
control control
 18-13

Bill of Materials (BOM) File

A Complete Product Description

• Materials
• Parts
• Components
• Production sequence
• Modular BOM
– Subassemblies
• Super BOM
– Fractional options
 18-14

Inventory Records File

• Each inventory item carried as a

separate file
– Status according to “time buckets”

• Pegging
– Identify each parent item that created
demand
 18-15

Additional MRP Scheduling Terminology

• Gross Requirements

• Scheduled receipts

• Projected available balance

• Net requirements

• Planned order receipt

• Planned order release

 18-16

MRP Example

Item On-Hand Lead Time (Weeks)

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
Requirementsinclude
include95
95units
units(80
(80firm
firmorders
ordersand
and15
15forecast)
forecast)of
ofXX
in
inweek
week10
10
 18-17

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
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 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
ItIttakes
takes
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
22A’s
A’sfor
for On-
hand
Net requirements
Planned order receipt
20
20
each
eachXX 25
C
Planner order release
Gross requirements 45
20
40
LT=2 Scheduled receipts
Proj. avail. balance 10 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 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 18-18

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
ItIttakes
takes Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
11BBforfor hand Planned order receipt 20

each
eachXX
25
C
Planner order release
Gross requirements 45
20
40
LT=2 Scheduled receipts
Proj. avail. balance 10 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 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 18-19

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes33
C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s
C’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachAA
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 18-20

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes22
C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s
C’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachBB
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 18-21

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) D(5) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes55
C
LT=2
Gross requirements
Scheduled receipts
45 40

D’s
D’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachBB
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 18-22

Closed Loop MRP

Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning

No
Realistic? Feedback
Feedback
Yes
Execute:
Capacity Plans
Material Plans
 18-23

Lot Sizing in MRP Programs

• Lot-for-lot (L4L)- planned orders to

match the net requirement
• Economic order quantity (EOQ)
• Least total cost (LTC)
• Least unit cost (LUC)
• Which one to use?
– The one that is least costly!
 18-24

Question Bowl

Which type of industry has only

“medium” expected benefits from
the use of MRP?
a. Assemble-to-stock
b. Fabricate-to-stock
c. Assemble-to-order
d. Fabricate-to-order
e. Process
Answer: e. Process
 18-25

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
promising
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 trade off manufacturing, marketing,
and engineering conflicts and include all demands from
product sales, warehouse replenishment, spares, and
interplant requirements.)
 18-26

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
 18-27

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

 18-28

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.)
 18-29

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
 18-30

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.)
 18-31

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

 18-32

End of Chapter 18

1-32