Material Requirements

Planning (MRP)
MRP
Material requirements planning (MRP): the logic that ties production functions
together from a material planning and control view.
◦ MRP has been installed almost universally in manufacturing firms
◦ Even small ones
A logical, easily understood approach to the problem of managing the parts,
components, and materials needed to produce end items.
MRP
The MRP system works as follows:
 The master production schedule states the number of items to be produced during
specific time periods.
A bill-of-materials file identifies the specific materials used to make each item and the
correct quantities of each.
The inventory records file contains data such as the number of units on hand and on
order.
These three sources—master production schedule, bill-of-materials file, and inventory
records file—become the data sources for the material requirements program, which
expands the production schedule into a detailed order scheduling plan for the entire
production sequence.
Master Production Scheduling
The master schedule deals with end items and is a major input to the MRP process.
All production systems have limited capacity and limited resources
◦ The aggregate plan provides the general range of operation; the master scheduler must
specify exactly what is to be produced.
Aggregate production plan shows overall quantities to produce.
◦ Does not specify type
Master production schedule shows quantities of each type, with information about the
production time frame.
Master Production Scheduling
Multiple Levels in Products
Multiple levels of relationships exist in a product.
While computing the requirement for an item, it is important that we proceed level by
level. Otherwise, the amount of inventory that we make available will be different from
what is required.
Let us study the example of a basic telephone instrument.
The telephone instrument consists of a base unit and a handset. The handset has a speaker
and a microphone and is covered by a pair of cover plates firmly held together using a pair
of screws. There is a wire that connects the handset to the base unit.
Let us assume that we have in stock an inventory of 30 telephones, 27 handsets and 16
cover plates. Suppose that we want to plan for the production of 100 telephones during the
next week. How much inventory do we need in each of these components?
Multiple Levels in Products
One method (Method A) is to merely subtract the on-hand inventory from the
requirement at each level to arrive at the number.
Another method (Method B) is to proceed level by level in the computation. In this
method, after computing the requirement at one level, we use the parent–child
relationship to compute the requirement at the next level.
Product Structure
 The product structure graphically depicts the dependency relationships among various
items that make up the final product.
Consider, the example of telephone. If we disassemble the telephone instrument
progressively, we will be able to understand the product structure. In our example, two
assemblies and two components make up the final product: the base unit assembly, the
handset assembly, a connecting cable, and a pair of jacks to connect the ends of the cable
with the base unit and the handset.
At the next level, we can identify the sub-assemblies that make up each assembly.
 In several real-life examples, it is not possible to represent the dependency information in
the form of a product structure. This is because the number of components that make up a
final product could be numerous and the number of levels involved could also be many.

 One can represent this information using a standard data structure. Such a structure is
known as the bill of materials (BOM).
Bill of Materials (BOM)
Contains the complete product Often called the product
description, listing the materials, structure file or product tree
parts, and components along because it shows how a product
with the sequence in which the is put together
product is created
The BOM shows
how the product is
Single Level BOM-simplest put together
format Modular bill of material are very
Indented BOM-Multi-level useful to represent product
format structures with several varieties.
Modular BOM
Bill of Material (BOM)
Parts List in a indented BOM List
Low-Level Coding
Level 0 in the independent demand item
Lower levels (higher numbers) refer to components and raw materials
In low-level coding, all identical items are placed at the same level of the Bill of material
◦ This makes it a simple matter for the computer to scan across each level and
summarize the number of units of each item required
Problem
Consider a product, code-named A, manufactured by a company. Product A is made of
three Sub-assemblies B, C, and D. One unit of B, four units of C, and two units of D are
required for assembling one unit of Product A. Sub-assembly B is made of two units of
E and four units of F. Sub-assembly C is made of two units of E and four units of D,
whereas Sub-assembly D is made of one unit of G and three units of H.
(a) Develop a BOM for Product A.
(b) How many units of D are required to manufacture 10 units of A?
The total number of D’s required for manufacturing A =180
Lead Times for the components
Once managers determine when products are needed, they determine when to acquire
them.
The time required to acquire (that is, purchase, produce, or assemble) an item is known
as lead time.
Lead time for a manufactured item consists of move , setup , and assembly or run times
for each component.
For a purchased item, the lead time includes the time between recognition of need for
an order and when it is available for production.
Lead Times for the components
For example, consider the bill of material of product (“Awesome A”).

Component Lead Time

A 1 week
B 2 weeks
C 1 week
D 1week
E 2 weeks
F 3 weeks
G 2 weeks
Time-phased Product Structure
Gross and Net Material Requirement
Plan
 Consider the example of Slide No. 18. We need to develop the gross requirements plan
with a production schedule that will satisfy the demand of 50 units of A by week 8.
Gross Requirements and Net
Requirements
Gross material requirements, which assumes that there is no inventory on hand.
A net requirements plan adjusts for on-hand inventory.
Consider a product, code-named A, manufactured by a company. Product A is made of
three Sub-assemblies B, C, and D. One unit of B, four units of C, and two units of D are
required for assembling one unit of Product A. Sub-assembly B is made of two units of
E and four units of F. Sub-assembly C is made of two units of E and four units of D,
whereas Sub-assembly D is made of one unit of G and three units of H. (Slide No 15 and
16).
How many units of D are required to manufacture 10 units of A if there is already an
inventory of 10 units each of C and D?
Gross Requirements and Net
Requirements
 If the gross requirement for product A (speaker) is 100 and there are 20 of those
speakers on hand, the net requirement for product A is 80 (i.e., 100 – 20). However, each
Product A on hand contains 2 Bs (based on the BOM in the previous slide). As a result,
the requirement for Bs drops by 40 Bs (20 product As on hand × 2 Bs per A). Therefore,
if inventory is on hand for a parent item, the requirements for the parent item and all its
components decrease because each product A contains the components for lower-level
items
Gross and Net Material Requirement
Plan
Now, suppose we consider the following on-hand inventory. Based on this information,
we are trying to develop the net requirement plan.

Item On-hand Inventory

A 10
B 15
C 20
D 10
E 10
F 5
G 0
Gross and Net Material Requirement
Plan
Week
Item
  1 2 3 4 5 6 7 8
Gross Requirements 400
Scheduled Receipts 100
Projected on hand 100 100 100
Net Requirements 300
Planned Order Receipts 300
  Planned Order Releases 300

Lead time of two weeks

 Week
Lead Time Level Item
1 2 3 4 5 6 7 8
1 0 A Gros s Requirements 50
Scheduled Receipts
Projected on hand 10 10 10 10 10 10 10 10
Net Requirements 40
Planned Order Receipts 40
Planned Order Releas es 40
2 1 B Gros s Requirements 80
Scheduled Receipts
Projected on hand 15 15 15 15 15 15 15
Net Requirements 65
Planned Order Receipts 65
Planned Order Releas es 65
1 1 C Gros s Requirements 120
Scheduled Receipts
Projected on hand 20 20 20 20 20 20 20
Net Requirements 100
Planned Order Receipts 100
Planned Order Releas es 100
2 2 E Gros s Requirements 130 200
Scheduled Receipts
Projected on hand 10 10 10 10 10
Net Requirements 120 200
Planned Order Receipts 120 200
Planned Order Releas es 120 200
3 2 F Gros s Requirements 200
Scheduled Receipts
Projected on hand 5 5 5 5 5 5
Net Requirements 195
Planned Order Receipts 195
Planned Order Releas es 195
1 3 D Gros s Requirements 390 130
Scheduled Receipts
Projected on hand 10 10 10
Net Requirements 380 130
Planned Order Receipts 380 130
Planned Order Releas es 380 130
2 3 G Gros s Requirements 195
Scheduled Receipts
Projected on hand 0
Net Requirements 195
Planned Order Receipts 195
Planned Order Releas es 195