MATERIAL REQUIREMENT PLANNING

MASTER SCHEDULE
FOR END ITEMS

MRP

DETAILED SCHEDULE FOR

RAW MATERIALS
&
•Dependent demand
•lumpy COMPONENTS

USED IN THE END PRODUCTS

INDEPENDENT vs DEPENDENT DEMAND
Independent Demand

 Demand unrelates to demand of other products

(end products, spare parts)
 Usually forecast
 Conventional Inventory Control applicable.
INDEPENDENT vs DEPENDENT DEMAND
Dependent Demand
 Demand directly related to demand of some other product
(components, raw materials, subassemblies)
 Requirements derived from delivery schedule of end items.

 MRP is the appropriate tool for planning & control of

manufacture inventories
 Raw material
 WIP (Work In Progress)
 Component parts
 Subassemblies
 LUMPY DEMAND

Avg.
rate of CONTINUOUS DEMAND
demand

Inv.
LEVEL
TIME

LUMPY DEMAND

Typical of MRP Applications

(raw materials, components,
sub-assemblies consumed in
Inv.
LEVEL
Large Increments
t1 t2 t3 t4 t5 t6 corresponding to a certain
TIME batch of final product.
 LEAD TIMES
Ordering Lead Time:
(for purchased parts)

Initiation of Receipt of item from vendor

purchase (off shelf / fabricate)
requisition

Manufacturing Lead Time:

Process part through sequence of

Place order machines as given on route sheet Item delivered
(operation + non-productive times)

In MRP, lead times are used to determine starting dates for

assembling final products and subassemblies, for producing
component parts, and for ordering raw materials.
INPUTS TO MRP
 Master Production Schedule

 Bill of Material file (BOM – the product

structure)

 Inventory Record File

 COMMON USE ITEMS

BASIC RAW MATERIAL

COMPONENTS

C1 C2 C3 Cn

PRODUCTS

P1 P2 P3 PN

MRP collects the common use items from different products to

effect economics in ordering the raw materials and manufacturing
the components/subassemblies
 STRUCTURE OF AN MRP SYSTEM
Service
Customer Sales Parts
orders forecasts requirements

Master
Engg. Production Inventory
changes schedule transactions

Bill of Inventory
MRP
Materials Record
PROCESSOR
file file

OUT PUT
REPORTS

…
Gross & Net Capacity vs Shop floor Production Order
requirements report Load report Planning Status & exceptions
report report
OVERVIEW OF THE MRP SYSTEM
 MASTER PRODUCTION SCHEDULE
Week no 6 7 8 9 10
Product P1 50 100
Product P2 70 80 25
Etc.

TYPICAL INFORMATION IN MPS:

a) What end products are to be consumed?

b) How many of each product to be consumed?
c) When the products are to be ready for shipment?

Firms customer orders

DEMAND Forecasted demand
Often excluded from MPS, Demand for individual component
since it does not include end Parts (for repair and service)
product demand.
 BILL OF MATERIAL FILE (BOM)

Level 0
(product) P1

Level 1
(sub-assemblies) S1 (1)
S2 (2)

Level 2
(raw materials) C1 C2 C3 C4 C5 C6
(1) (4) (1) (2) (2) (1)

Subassembly S1 is the PARENT of components C1, C2 and C3. Any

engineering changes affecting product structure must be fed to
BOM file.
 INVENTORY RECORD FILE
•Accurate current data on inventory status
•Generally computerized
•Lead times must be established in inventory record file.

Ordering Purchasing
Lead time records

Process
Manufacturing
Route
Lead time
sheets

INVENTORY TRANSACTIONS (issue, arrivals, order

placement/realization) MUST BE KEPT CURRENT
 INPUTS FOR MRP EXAMPLE
P1 P2
S1(1) S2(2) S3(1) S4(1)

C1 C2 C3 C4 C5 C6 C4 C6 C 7 C2 C8
(1) (4) (1) (2) (2) (1) (1) (4) (2) (2) (1)
M4
PRODUCT STRUCTURE FOR PRODUCTS P1 & P2
Initial inventory status for M4
PERIOD 1 2 3 4 5 6
ITEM RAW MATERIAL M4
GROSS REQUIREMENTS Lead times (in weeks)
SCHEDULED RECEIPTS 40 Assembly Manufacturing Ordering

ON HAND 90 P1 = 1 C4 = 2 M4 = 3
50
P2 = 1
NET REQUIREMENTS S2 = 1
PLANNED ORDER RELEASES S3 = 1
 BASIC MRP LOGIC

• Input MPS, BOM, Inventory status, Lead

times
• Do parts Explosion
• Offset requirements by lead times
• Netting of requirements from Gross by
considering availabilities
• Lot sizing of net requirements for
procurement or production
 1 2 3 4 5 6 7 8 9 10
Product 
Item Product P1 50 100

GROSS REQUIREMENTS

SCHEDULED RECEIPTS

ON HAND 0
NET REQUIREMENTS 50 100

PLANNED ORDER RELEASES 50 100

Item Product P2 70 80 25

GROSS REQUIREMENTS

SCHEDULED RECEIPTS

ON HAND 0
NET REQUIREMENTS 70 80 25

PLANNED ORDER RELEASES 70 80 25

 1 2 3 4 5 6 7 8 9 10
Product 
Item Sub Assembly S2 100 200

GROSS REQUIREMENTS

SCHEDULED RECEIPTS

ON HAND 0
NET REQUIREMENTS 100 200

PLANNED ORDER RELEASES 100 200

Item Sub Assembly S3 70 80 25

GROSS REQUIREMENTS

SCHEDULED RECEIPTS

ON HAND 0
NET REQUIREMENTS 70 80 25

PLANNED ORDER RELEASES 70 80 25

 1 2 3 4 5 6 7 8 9 10
Product 
Item Component C4 70 280 25 400

GROSS REQUIREMENTS

SCHEDULED RECEIPTS

ON HAND 0
NET REQUIREMENTS 70 280 25 400

PLANNED ORDER RELEASES 70 280 25 400

Item Raw Material M4 70 280 25 400

GROSS REQUIREMENTS

SCHEDULED RECEIPTS 40
ON HAND 50 90 20

NET REQUIREMENTS -20 280 25 400

PLANNED ORDER RELEASES 280 25 400

 MRP OUTPUT REPORTS
Primary Outputs:

• Order release notice, to place orders that have

been planned by the MRP system.
• Reports showing planned orders to be released in
future periods.
• Rescheduling notices, indicating changes in due
dates for open orders.
• Cancellation notices, including cancellation of open
orders because of changes in the master schedule.
• Reports on inventory status.
 MRP OUTPUT REPORTS
Secondary Outputs:

• Performance reports of various types – costs,

item usage, actual vs planned lead times and
other measures of performance.
• Exceptions reports showing – deviations from
schedule, overdue orders, scrap, and so on.
• Inventory forecasts indicating projected
inventory levels (both aggregate inventory as
well as item inventory) in future periods.
 BENEFITS OF MRP

• Reduction in inventory (30 - 50% in WIP)

• Improved customer service (late orders
reduced by 90%)
• Quicker response to changes in demand and
master schedule
• Greater productivity
• Reduced set up and product changeover
costs
• Better machine utilization
• Increased sales and reductions in sales price
 SUMMARY

• Dependent vs Independent demand

• MRP is useful fro planning requirements of
components and parts knowing end item demand
• Major inputs to MRP include MPS, BOM, Inventory
and Lead times
• The MRP logic goes through Explosion, Offsetting,
Netting and Lot sizing
• Major benefits of MRP include improved planning,
lesser inventories, shorter lead times
 EVOLUTION OF MRP
Improved
computational
efficiency of AN IMPROVED ORDERING METHOD
computers

Unrealistic M/c PRIORITY PLANNING
schedules, ignoring
plant capacities 
Not only plans priorities CLOSED LOOP MRP
but provides feedback to (Links functions
executing the priority
plan
 -Capacity planning
MRP II -Inventory management
-Shop floor control
Manufacturing -MRP)
Resource
Planning

• Links up the closed loop MRP system with the

financial systems of the company