MODULE 4

• MRP is a computer based technique to

determine the quantity and timing for the
acquisition of dependent demand items
needed to satisfy the master production
schedule (MPS) requirement.
• It is used for lumpy or erratic demands.
• Based on the manner the materials managers react
to inventory situation, there could be two types of
inventory systems: reactive and planning.
• MRP systems have replaced the reactive inventory
systems
• in many organization. Managers using reactive
systems ask, ‘what should I do now ?’, whereas
managers using planning systems look ahead and
ask, ‘what will I be needing in the future ? How much
and when ?’
• Reactive systems are simpler to manage in many
respects but have serious drawbacks like high
inventory costs and unreliable delivery
performance.
• The planning system is more complex to manage,
but it offers numerous advantages. It reduces
inventories and their associated costs because it
carries only those items and components that
are needed—no more and no less.
 TERMS USED IN MRP
Gross Requirement
It is the projected needs for raw materials, components, subassemblies, or finished goods by the
end of the period shown. Gross requirement comes from the master schedule (for end items) or
from the combined needs of other items. But in MRP it is the quantity of item that will have to
be disbursed, i.e issued to support a parent order (or orders), rather than the total quantity of
the end product
Scheduled Receipts
They are materials already on order from a vendor or in-house shop due to be received at the
beginning of the period. Put differently, they are open orders scheduled to arrive from vendors
or elsewhere in the pipeline.
On Hand or Available
The expected amount of inventory that will be on hand at the beginning of each time period.
This includes amount available from previous period plus planned order receipts and scheduled
receipts less gross requirements.
On Hand = Scheduled receipt + Available from previous period – GR
Net requirement: The actual amount needed in each time period.
Net requirement = gross requirement – total scheduled receipt – on hand NR = (GR – SR – OH)
Planned order receipt
The quantity expected to be received by the beginning of the
period in which it is shown under lot-for lot ordering; this quantity
will equal net requirement. Any excess is added to available
inventory in next time period.
Planned order release
It indicates a planned amount to order in each time period; equals
planned-order receipts offset by lead time. This amount generates
gross requirements at the next level in the assembly or production
chain. When an order is executed it is removed from the “planned
order-receipt” and planned-order-release row and entered in the
“scheduled receipt” row.
 BASIC MRP CONCEPTS
• Independent versus dependent demand
• Lumpy demand
• Lead time
• Common use item
• Time phasing.
Factors affecting computation of MRP
PRODUCT STRUCTURE
 LOT SIZING
• It is the ordering of inventory items in quantities exceeding net
requirements, for the reason of economy, or convenience. In the
example given above the parent items A, B, and C have been assumed
to be ordered in quantities equal to the respective net requirements for
these items.
• But in reality, the lot sizing, where ever employed, would invalidate this
assumption. It is because the gross requirement for a component
derives directly from the (planned) order quantity of its parent(s).
• To illustrate this concept, let us modify the example such that gear C be
produced with an order quantities that must be a multiple of 5
(because of some consideration in the gear machining process), the net
requirement of 76 will have to be covered by a planned order for 80.
• This will increase the gross requirement for the forging blank D
correspondingly.
Recurrence of requirements within the time
horizon
• The timing of end-item requirements across a
planning horizon of typically, a year span or longer,
and recurrence of these requirements within such
a time span also affect the material requirements.
• The planning horizon of the MRP usually covers a
time span large enough to contain multiple
(recurring) requirements for a given end item
which also complicate the computation of
component requirements.
MRP inputs and outputs
Master production schedule (MPS)
• One of the three principal inputs of MRP system, the
master production schedule, is a list of what end
products are to be produced, how many of each product
is to be produced, and when the products are to be
ready for shipment.
• A master production schedule is to MRP system what a
program is to a computer. It is a driving input which an
MRP system depends for its real effectiveness and
usefulness because it is the determinant of future load,
inventory investment, production, and delivery service.
 Bill of Materials (BOM)
• Computation of the raw material and component
requirements for end products listed in the
master schedule, is done by the product structure.
• The product structure is specified by the bill of
materials, which is a listing of component parts
and subassemblies that make up each product.
• A file which lists all assemblies together is the bill-
of-materials file.
 Inventory record file
• It comprises the individual item inventory records containing the status data
required for the determination of net requirements. This file is kept update
by the position of inventory transactions which reflect the various inventory
events taking place.
• Each transaction (stock receipt, disbursement, scrap, etc) changes the status
of the respective inventory item.
• In addition to the status data, the inventory records also contain so-called
planning factors used principally for the size and timing of planned orders.
Planning factors include item lead time, safety stock (if any), scrap
allowance, lot-sizing algorithms, etc.
• The item lead time for raw materials, components and assemblies must be
established in the inventory record file in which the ordering lead time can
be determined from purchasing records and the manufacturing lead time
can be determined from the process route sheets (or routing file).
 Out puts of MRP
• Primary output
• Secondary output
 Primary outputs
• Order-release notice: calling for the planned orders.
• Rescheduled notice: calling for changes in open-
ordered due dates.
• Reports: showing planned orders to be released in
future periods.
• Cancellation notices, including cancellation of open
order because of changes in the master schedule.
• Reports on inventory status
 Secondary outputs
• Performance reports of various types,
indicating cost, item-usage, actual versus
planned lead time, and other measures of
performance.
• Exception reports, showing deviations from
schedule, orders that are overdue, scrap, and
so on.