Lesson 18 – Materials Requirements Planning
Lesson 18
Material Requirements Planning (MRP)
End Product
MRP is a computer based information
system for ordering, scheduling, and
managing dependent demand inventory
requirements
E(1)
18 - 1
Independent Versus Dependent Demand
Independent Demand - demand
at the customer end product level
End Product
Dependent Demand demand for items that are
subassemblies, component
parts or raw materials to be
used in the production of end
products
E(1)
18 - 2
Independent Versus Dependent Demand
Independent Demand
Dependent Demand
A
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain
Dependent demand is certain
18 - 3
Copyright – Harland E. Hodges, Ph.D
18-1
Lesson 18 – Materials Requirements Planning
Positive View Of MRP
“ I don’t know how we managed to get along without MRP for as long as we
did.
Our scheduling has gone from a state of turmoil to relative calm.
We have achieved a substantial reduction in inventory size and cost while
increasing our customer service.
We are more than satisfied with MRP; it allows to plan rather than spend all our
time trying to meet one crisis after another.
I would strongly recommend that all manufacturing firms adopt MRP or some
similar approach”.
18 - 4
Negative View Of MRP
“We had heard so many good things about MRP that we couldn’t wait to get
started, but so far, it seems like we’ve just been spinning our wheels.
We’re not even close to going online with it, and yet we’ve already exceeded
our original time estimates and costs are out of sight.
Everyone is discouraged, especially the brass.
There is even some talk of just scrapping the whole idea”
18 - 5
Materials Requirement Planning - MRP
Materials Requirements Planning is a a computer based information system
designed to handle ordering and scheduling of dependent demand inventory
requirements . It
. Takes into account lead times, and
. Develops a production plan showing quantity and timing
for materials, component parts and subassemblies from the
first component to the last
As you have learned or will learn in your information systems
class, information systems are only as good as the input
data. Two of the most prevalent reasons for MRP failure are
. Lack of planning for implementation
. GIGO
18 - 6
Copyright – Harland E. Hodges, Ph.D
18-2
Lesson 18 – Materials Requirements Planning
MRP Inputs & Outputs
Changes
Order releases
Master
Schedule
Planned-order
schedules
Primary
reports
Bill of
Materials
MRP System
Inventory
File
Exception reports
Planning reports
Performancecontrol
reports Secondary
reports
Inventory
Transactions
18 - 7
Master Scheduling Process
Recall the Master Production Scheduling Process is a procedure for
considering inventories, customer orders, & forecasts to produce a projected
inventory, master production schedule & ATP.
Projected
Inventory
Beginning
Inventory
Master
Production
Schedule
Master
scheduling
Forecast
Customer
Orders
Available To
Promise
(uncommitted
inventory)
18 - 8
Master Production Schedule
The Master Production Schedule (MPS) is a schedule of how much & when
to produce independent (customer end product) demand. It shows when the
end product is needed but does not show when raw materials, components,
subassemblies or parts are needed.
Planning Period
Forecast
Customer Orders
Projected Demand
Projected On Hand Inventory
Master Production Schedule (MPS)
1
30
33
33
64 31
2
30
20
30
1
3
30
10
30
41
70
4
30
4
30
11
5
40
2
40
41
70
6
40
7
40
8
40
40
1
40
31
70
40
61
70
18 - 9
Copyright – Harland E. Hodges, Ph.D
18-3
Lesson 18 – Materials Requirements Planning
Product Planning Horizon
The Product Planning Horizon shows the timing, lead times and steps
in the manufacturing process to assure that the end item is
manufactured correctly and on-time.
Assembly
Procurement
Lead Time
Sub-assembly
Fabrication
Sub-assembly
Lead Time
Procurement
1
2
Assembly
Lead Time
3
4
5
6
7
8
9
10
Cumulative Lead Time - the sum of the lead times that sequential
phases of a process require.
18 - 10
Assembly Time Chart
Assembly Time Charts show the material order points needed to meet
scheduled availability of the end item
Procurement of
raw material D Fabrication
of part E
Procurement of
Subassembly A
raw material F
Final assembly
Procurement
and inspection
Of part C
Procurement of
part H
Procurement of
Subassembly B
raw material I
Fabrication
of part G
1
2
3
4
5
6
7
8
9
10
11
Material D, F and I must be ordered at the beginning of week 2 to meet a
delivery at the beginning of week 12
18 - 11
Bill Of Materials
The Bill of Materials (BOM) is a listing of all of the raw materials, parts,
subassemblies, and assemblies needed to produce one unit of an end
product. The Bill of Materials File contains all Bill of Materials for each
end product the company produces.
A Product Structure Tree - a visual depiction of the requirements in a
bill of materials, where all components are listed by levels.
18 - 12
Copyright – Harland E. Hodges, Ph.D
18-4
Lesson 18 – Materials Requirements Planning
Bill Of Materials – Chair Example
Back Supports
Cross Bar
Side Rails
Seat
Legs
Cross Bar
18 - 13
Product Structure Tree - Chair Example
Chair
Leg Assembly
Legs (2)
Seat
Cross Bar
Side Rails (2)
Back Assembly
Cross Bar
Back Supports (3)
18 - 14
Product Structure Tree - Example
Example 1: Use the information presented below to answer the following?
Determine the quantities of B, C, D, E and F to complete one X. Determine the
quantities of each of these components to produce 200 X’s.
Level
0
X
2
3
C
B(2)
1
D(3)
E(4)
B-2
B - 400
C-1
C - 200
E D - 3x2 = 6
D - 1200
E - 4x3x2+1x2+2 = 28
E - 5600
F-2
F - 400
E(2)
F(2)
18 - 15
Copyright – Harland E. Hodges, Ph.D
18-5
Lesson 18 – Materials Requirements Planning
Even though this template is provided, manual acuity
will be necessary to solve some of the problems.
18 - 16
Bill of Material
Menu
18 - 17
ED Worksheet
1
2
Steps
1.
Enter products and components in the columns to the
left – this builds the product structure to the right
2.
Enter quantities in the product structure tree in the bright
green cells
18 - 18
Copyright – Harland E. Hodges, Ph.D
18-6
Lesson 18 – Materials Requirements Planning
EXPLODE Worksheet
2
1
Steps
1.
Click the Explode BOM Components Macro
2.
Enter the end item quantity and click OK
18 - 19
EXPLODE Worksheet
The BOM explosion is automatically shown in the
product structure tree and the total for all
components and subcomponents are shown in the
BOM Quantity to the left.
18 - 20
EXPLODE Worksheet
Here, the BOM explosion is shown for 200 X’s
18 - 21
Copyright – Harland E. Hodges, Ph.D
18-7
Lesson 18 – Materials Requirements Planning
2
1
ASSEMBLY Worksheet
3
3
Steps
1.
If the lead times are provided for each component, enter
them in the Lead Time column (here we show the lead
time is 1 unit of time for each component)
2.
Click the Calculate Assembly Paths macro
3.
Choose which assembly time paths you wish to show in
the Assembly Time Chart.
18 - 22
MRP Elements
A Material Requirements Plan shows the following time phased elements.
. Gross Requirements - total expected demand for an item or
raw material in a time period
. Scheduled Receipts - open orders scheduled to arrive (from
vendors or elsewhere) in the pipeline
. Projected on Hand - Expected amount of inventory that will
be on hand at the beginning of each time period
. Net Requirements - The actual amount needed in each time
period
. Planned Order Receipts - Quantity expected to be received
by the beginning of the period in which it is shown
. Planned Order Releases - Planned amount to order in each
time period offset by lead time
18 - 23
Time Phased MRP
These can be shown in a time phased planning chart like the one below: The
time phase can be variable (weeks, days, etc).
Week Number
1
2
3
4
5
6
7
8
Item
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
18 - 24
Copyright – Harland E. Hodges, Ph.D
18-8
Lesson 18 – Materials Requirements Planning
MRP – Example 1
Example 1a: A firm that produces wood shutters and bookcases has received
two orders for shutters. One for 100 shutters and one for 150 shutters. The
100 unit order is due for delivery a the start of week 4. The 150 unit order is
due for delivery at the start of week 8. Each shutter consists of 4 slatted wood
sections and two frames. The wood sections are made by the firm and
fabrication takes one week. The frames are ordered, and lead time is two
weeks. Assembly of the shutters requires one week. There is a scheduled
receipt of 70 wood sections in week 1 (at the beginning of).
Determine the size and timing of planned orders (MRP) necessary to meet
the delivery requirements where there is lot for lot ordering (e.g. order
size is equal to net requirements).
18 - 25
MRP – Example 1
The product structure tree for a wood shutter
Wood Shutter
Frames (2)
Wood
Sections (4)
Therefore, we need to develop the MRP for Wood Shutters,
Frames, and Wood Sections.
18 - 26
MRP – Example 1
Week Number
Master Schedule Quantity
Wood Shutters
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Week Number
Frames
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
1
4
2
3
4
100
5
6
7
8
150
0
0
0
100
0
0
0
150
0
0
0
0
0
0
0
0
0
0
0
100
0
100
100
0
0
0
0
0
0
0
0
0
0
0
0
150
0
150
150
0
5
6
7
8
0
0
200
0
0
0
300
0
0
0
0
200
0
0
0
0
0
200
200
0
0
0
0
0
0
0
0
300
0
0
0
0
0
300
300
0
0
0
0
0
Week Number
Sections
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
0
70
70
0
0
0
2
3
4
5
6
7
8
0
400
0
0
0
600
0
70
0
0
330
70
330
330
0
0
0
0
0
0
0
0
0
0
0
0
600
0
600
600
0
0
0
0
0
18 - 27
Copyright – Harland E. Hodges, Ph.D
18-9
Lesson 18 – Materials Requirements Planning
MRP – Example 1
First, develop a master schedule for the Shutters
Week Number
Master Schedule Quantity
Wood Shutters
1
2
3
4
5
100
6
7
8
150
From delivery requirement
18 - 28
MRP – Example 1
Next, calculate the MRP for the Wood Shutters
Week Number
Master Schedule Quantity
Wood Shutters
Gross requirements
Scheduled receipts
Projected on hand
From MPS
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
4
5
100
6
7
8
150
0
0
0 100
0
0
0 150
0
0
0
0
0
0
0
0
0 100
0
0 100
0 100
0
0
0
0
0
0
0
0
0
0 150
0
0 150
0 150
0
Order Releases offset for lead time of 1 week
18 - 29
MRP – Example 1
Next, calculate the MRP for the Frames
Shutter Planned Order Release * 2
becomes Frames Gross Requirement
Week Number
Frames
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
4
5
6
7
8
0
0
200
0
0
0
300
0
0
0
0
200
0
0
0
0
0
200
200
0
0
0
0
0
0
0
0
300
0
0
0
0
0
300
300
0
0
0
0
0
Order Releases offset for lead time of 2 weeks
18 - 30
Copyright – Harland E. Hodges, Ph.D
18-10
Lesson 18 – Materials Requirements Planning
MRP – Example 1
Next, calculate the MRP for the Wood Sections
Shutter Planned Order Release * 4
becomes Sections Gross Requirement
Week Number
Sections
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
2
0
70
70
0
0
0
70 Scheduled at beginning of Week 1
3
4
5
6
7
8
0
400
0
0
0
600
0
70
0
0
330
70
330
330
0
0
0
0
0
0
0
0
0
0
0
0
600
0
600
600
0
0
0
0
0
Order Releases offset for lead time of 1 week
18 - 31
Even though this template is provided, manual acuity
will be necessary to solve some of the problems.
18 - 32
MRP
Menu
18 - 33
Copyright – Harland E. Hodges, Ph.D
18-11
Lesson 18 – Materials Requirements Planning
ED Worksheet
2
1
Step 1: Enter the product components and subcomponents
in the table to the left The representation is shown in the
product structure tree.
Step 2: Enter the component quantity in the product structure
tree.
18 - 34
ED Worksheet
Step 3: Enter the lead time, on
hand, and lot ordering rule (lot size
if not lot for lot, and 1 for lot for lot
ordering)
Step 4: Enter the end item demand
in the appropriate starting week
Step 5: Enter any scheduled
receipts in the appropriate week
4
3
5
18 - 35
ASSEMBLY Worksheet
2
1
2
Steps
1.
Click the Calculate Assembly Paths macro
2.
Choose which assembly time paths you wish to show in
the Assembly Time Chart.
18 - 36
Copyright – Harland E. Hodges, Ph.D
18-12
Lesson 18 – Materials Requirements Planning
MRP Worksheet
The MRP is automatically
calculated for each component
and subcomponent in the
product structure tree. The
levels are color coded
according to their position in
the product structure tree.
1
2
Here the MRP is shown for:
3
1.
WS
2.
F
3.
S
18 - 37
MRP – Example 2
Example 1b: A firm that produces wood shutters and bookcases has received
two orders for shutters. One for 100 shutters and one for 150 shutters. The
100 unit order is due for delivery a the start of week 4. The 150 unit order is
due for delivery at the start of week 8. Each shutter consists of 4 slatted wood
sections and two frames. The wood sections are made by the firm and
fabrication takes one week. The frames are ordered, and lead time is two
weeks. Assembly of the shutters requires one week. There is a scheduled
receipt of 70 wood sections in week 1 (at the beginning of).
Determine the size and timing of planned orders (MRP) necessary to meet
the delivery requirements with lot size ordering of
320 units for frames
70 units for wood sections
18 - 38
MRP – Example 2
Week Number
Master Schedule Quantity
Wood Shutters
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Week Number
Frames
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
1
4
2
3
4
100
5
6
7
8
150
0
0
0
100
0
0
0
150
0
0
0
0
0
0
0
0
0
0
0
100
0
100
100
0
0
0
0
0
0
0
0
0
0
0
0
150
0
150
150
0
5
6
7
8
0
0
200
0
0
0
300
0
0
0
0
320
0
0
0
0
0
200
320
0
120
0
0
0
120
0
0
320
120
0
0
0
120
180
320
0
140
0
0
0
1
2
3
Week Number
Sections
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
0
70
70
0
0
0
4
5
6
7
8
0
400
0
0
0
600
0
70
0
0
350
70
330
350
0
20
0
0
0
20
0
0
0
20
0
0
630
20
580
630
0
50
0
0
0
18 - 39
Copyright – Harland E. Hodges, Ph.D
18-13
Lesson 18 – Materials Requirements Planning
MRP – Example 2
The MRP for Wood Shutters is the same as in Example 1.
Week Number
Master Schedule Quantity
Wood Shutters
Gross requirements
Scheduled receipts
Projected on hand
From MPS
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
4
5
100
6
7
8
150
0
0
0 100
0
0
0 150
0
0
0
0
0
0
0
0
0 100
0
0 100
0 100
0
0
0
0
0
0
0
0
0
0 150
0
0 150
0 150
0
Order Releases offset for lead time of 1 week
18 - 40
MRP – Example 2
Next, calculate the MRP for the Frames
On hand after meeting requirements
Week Number
Frames
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
2
3
4
5
6
7
8
0
0
200
0
0
0
300
0
0
0
0
320
0
0
0
0
0
200
320
0
120
0
0
0
120
0
0
320
120
0
0
0
120
180
320
0
140
0
0
0
Lot size order quantity for frames
18 - 41
MRP – Example 2
Next, calculate the MRP for the Wood Sections
On hand after meeting requirements
Week Number
Sections
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
1
0
70
70
0
0
0
2
3
4
5
6
7
8
0
400
0
0
0
600
0
70
0
0
350
70
330
350
0
20
0
0
0
20
0
0
0
20
0
0
630
20
580
630
0
50
0
0
0
Lot size order quantity for sections
(increments of lot size of 70)
18 - 42
Copyright – Harland E. Hodges, Ph.D
18-14
Lesson 18 – Materials Requirements Planning
ED Worksheet
Note the changes in the lot
sizing rules.
18 - 43
MRP Worksheet
Note the changes in the MRP
for each component.
18 - 44
MRP Outputs
Outputs include Primary & Secondary Reports and Inventory transactions.
Primary Reports
. Planned Orders - amount and timing of future orders
. Order Releases - authorizing the execution of planned orders
. Changes - to planned orders, including revisions of due dates
or order quantities and cancellations of orders
Secondary Reports
. Performance control reports - evaluate system operations
including deviations from plans and cost information
. Planning reports - data assessing future material requirements
. Exception reports - data on any major discrepancies
18 - 45
Copyright – Harland E. Hodges, Ph.D
18-15
Lesson 18 – Materials Requirements Planning
MRP Updates
Updates to the system are necessary any time changes occur to make sure
that planners are always aware of the latest occurrences. These updates
primarily involve inventory updates regarding number produced, number
received, quality fallout, etc. (e.g. if you were supposed to receive 70 units and
only received 65 your MRP would be inaccurate. It must be updated to show
the latest information)
Depending on the business urgency or situation these updates may occur
either periodically or on a continuous basis.
. Periodic update systems are called “regenerative”
. Continuous update systems are called “net-change”
18 - 46
Other MRP Considerations
Other considerations include
. Safety stock
. Lot sizing (lot for lot, EOQ, fixed period ordering, part-period
ordering)
. Capacity Requirements Planning - the process of
determining the short range capacity requirements
.. Once the MRP is completed for all items that a
company produces it has visibility of all the
requirements for assemblies, sub-assemblies,
materials, etc. At this point, the company can
evaluate its ability to meet the requirements based on
equipment and labor availability. Plans may be
adjusted as a result of the capacity planning
procedure.
18 - 47
Capacity Planning
Develop a tentative
master production
schedule
Use MRP to
simulate material
requirements
Convert material
requirements to
resource requirements
Revise tentative
master production
schedule
No
Is shop
capacity
adequate?
No
Yes
Firm up a portion
of the MPS
Can
capacity be
changed to meet
requirements
Yes
Change
capacity
18 - 48
Copyright – Harland E. Hodges, Ph.D
18-16
Lesson 18 – Materials Requirements Planning
Benefits Of MRP
When MRP implementations are made successfully, benefits have been seen
in the areas of
. Lower levels of in-process inventories
. Ability to keep track of material requirements
. Ability to keep up with the results of day to day operational
effects with respect to the Master Production Schedule
. Ability to evaluate capacity requirements generated by the
Master Production Schedule
. A means of prioritizing and allocating production resources
18 - 49
Requirements For Successful MRP
Requirements for successful MRP implementations include but are not
limited to
. Proper planning for implementation
. A computer system with software to handle the nuances of a
business
. Accurate and up-to-date
.. Master Schedules
.. Bills of Materials
.. Inventory Records
. Integrity of data transactions
18 - 50
MRP II
MRP II is an expanded approach to MRP to include other areas of the company
in the planning process. The MRP II system is integrated with other
management information systems in the company to provide a consolidated
view of all company operations.
MRP II Modules include
. Forecasting
. Customer Order Entry
. Production Planning/ MPS
. Product Structure/BOM
. Inventory Control
. Financial Analysis
. MRP
. Capacity Planning
. Shop Floor Control
. Purchasing
. Accounting
18 - 51
Copyright – Harland E. Hodges, Ph.D
18-17
Lesson 18 – Materials Requirements Planning
MRP II
Master production
schedule
Business
Plan
Material requirements
planning
Marketing
Plan
No
Capacity requirements
planning
Financial
Plan
Production
Plan
No
Feasible?
Purchase
orders
Inventory
Feasible?
Feedback
Yes
Yes
Work
orders
Shop floor
control
Manufacture
18 - 52
Enterprise Resource Planning
ERP software is marketed by many vendors.
It includes the same modules as MRP II as well as financial and
distribution modules.
18 - 53
Homework
Read and understand all material in the chapter.
Discussion and Review Questions
Recreate and understand all classroom examples
18 - 54
Copyright – Harland E. Hodges, Ph.D
18-18