MRP : Concepts

By:-
Gaurav Goyal
Asstt Prof, LMTSOM

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MRP
Material requirements planning (MRP): Computer-
based information system that translates master schedule
requirements for end items into time-phased
requirements for subassemblies, components, and raw
materials.

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 SOME KEY TERMS
GROSS REQUİREMENTS
The total expected demand for an item or raw material
during each time period without regard to the amount on
hand.
SCHEDULED RECEİPTS
Open orders (orders that have been placed and are) scheduled
to arrive from vendors or elsewhere in the pipeline by the
beginning of a period.
PROJECTED ON HAND
The expected amount of inventory that will be on hand at the
beginning of each time period.
NET REQUİREMENTS
The actual amount needed in each time period.
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 SOME KEY TERMS
PLANNED-ORDER RECEİPTS
The quantity expected to be received by the beginning of the
period in which it is shown.
PLANNED-ORDER RELEASES
Indicates a planned amount to order in each time period;
equals planned-order receipts offset by lead time
LEAD TIME
Lead time is the period between a customer's order and
delivery of the final product

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 Independent and DependentIndependent
DemandDemand

A Dependent Demand

B(4) C(2)

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

Independent demand is uncertain.

Dependent demand is certain.
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DEPENDANT DEMAND
Dependent demand: Demand for items that are
subassemblies or component parts to be used in
production of finished goods.
Once the independent demand is known, the
dependent demand can be determined.
Material planning is concerned with planning to
meet dependent demand

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DEPENDENT VS INDEPENDENT
DEMAND

Independent demand Dependent demand

100 x 1 =
100 tabletops

100 tables 100 x 4 = 400 table legs

Continuous demand
400 –
Discrete demand
400 –
No. of tables

300 –
No. of tables
300 –
200 –
200 –
100 –
100 –
1 2 3 4 5
Week M T W Th F M T W Th F

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 INDEPENDENT DEMAND
Demand for the tables

Quantity

Time

Inventory of tables

On-hand
inventory

8 Time
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 From Aggregate Plan to MRP
Aggregate Production Plan

No
Can we produce 10,000 equivalent
Capacity ? units (total for products A, B and
C) per month for the next year?

Yes
Master Production Schedule

No Can we produce 500 units

of A, 600 of B and 400 of C
Feasibility approved? per week for the next month
?
Yes
Material Requirement Planning
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 AGGREGATE PRODUCTION
PLAN
Aggregate production planning is concerned with the
determination of production, inventory, and work force
levels to meet fluctuating demand requirements over a
planning horizon that ranges from six months to one
year.

 The planning horizon is often divided into periods.

For example, a one year planning horizon may be

composed of six one-month periods plus two three-
month periods.
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 MASTER PRODUCTION
SCHEDULE
A Master Production Schedule or MPS is the plan that a
company has developed for production, inventory, staffing,
etc. 

It sets the quantity of each end item to be completed in each

week of a short-range planning horizon.

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 MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
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MRP Inputs
Master Production Schedule
Time-phased plan specifying timing and quantity of
production for each end item.
Material Requirement Planning Process

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Master Schedule

Master schedule: One of three primary inputs in

MRP; states which end items are to be produced,
when these are needed, and in what quantities.
Cumulative lead time: The sum of the lead times that
sequential phases of a process require, from
ordering of parts or raw materials to completion of
final assembly.

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Bill-of-Materials

Bill of materials (BOM): One of the three primary inputs

of MRP; a listing of all of the raw materials, parts,
subassemblies, and assemblies needed to produce one
unit of a product.
Product structure tree: Visual depiction of the
requirements in a bill of materials, where all
components are listed by levels.

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Product Structure Tree
Figure 13.5

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

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 Nature of MRP
B ik e Level 0

F ra m e S eat B ra k e K it F ro n t W h e el R e ar W h eel
Level 1

R im S p o kes
Level 2

H o op W ire
Level 3

Use forecast to predict required amount of level 0 (end product)

Use this number to determine number of lower level components needed
(dependent demand)
Inventory Records
One of the three primary inputs in MRP
Includes information on the status of each item by time
period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes

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MRP Processing
Gross requirements

Schedule receipts

Projected on hand

Net requirements

Planned-order receipts

Planned-order releases

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 MRP Processing
Gross requirements
Total expected demand

Scheduled receipts
Open orders scheduled to arrive

Planned on hand
Expected inventory on hand at the beginning of each
time period

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 MRP Processing
Net requirements
Actual amount needed in each time period

Planned-order receipts
Quantity expected to received at the beginning of the
period
Offset by lead time

Planned-order releases
Planned amount to order in each time period

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 End od Session 6

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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 include 95 units (80 firm orders and 15 forecast) of X

in week 10

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 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
It takes 2 LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
A’s for On- Net requirements 20
each X hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 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
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 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
It takes 1 B Proj. avail. balance 25 25 25 25 25 25 25 25
for each X On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 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
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 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
It takes 3 C’s C Gross requirements 45 40
LT=2 Scheduled receipts
for each A 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
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 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
It takes 2 C Gross requirements 45 40
LT=2 Scheduled receipts
C’s for each Proj. avail. balance 10 10 10 10 10
B 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
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 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
It takes 5 D’s C Gross requirements 45 40
LT=2 Scheduled receipts
for each B 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
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 Assignment question

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Updating the System
Regenerative system
Updates MRP records periodically (less dynamic)

Net-change system
Updates MPR records continuously (more dynamic)

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MRP Outputs
 Planned orders - schedule indicating the amount and
timing of future orders.
 Order releases - Authorization for the execution of
planned orders.
 Changes - revisions of due dates or order quantities, or
cancellations of orders.
 Performance-control reports - used to track problems
like missed delivery dates and stock outs in order to
evaluate system performance.
 Planning reports - are useful in forecasting future
inventory requirements.
 Exception reports - call attention to major discrepancies
such as late and overdue orders, excessive scrap rates etc.
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Other Considerations
Safety Stock
term used by inventory specialists to describe a level of
extra stock that is maintained below the cycle stock to
buffer against stockouts.
Safety Stock exists to counter uncertainties in supply
and demand
More complex for dependent demand items as compared
to independent demand items
Safety stock should be as minimum as possible

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Benefits of MRP
Low levels of in-process inventories

Ability to track material requirements

Ability to evaluate tentative capacity requirements

Means of allocating production time

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Requirements of MRP
Computer and necessary software
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data

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