MRP
Question: how do firms actually organize things
to turn materials into finished products?
Master Production Schedule (MPS)
• Time-phased plan specifying how many and
when the firm plans to build each end item
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)
MPS Example – Maine Woods Toy Co.
One possible MPS…
Product
Month
Week
Tricycle
Wagon
Scooter
Totals
41
300
300
October
42
43
44
45
300
300
300
300
300
300
300
2,400
300
November
46
47
300
300
300
300
2,400
48
49
300
250
250
300
December
50
51
250
250
250
250
2,000
52
250
250
Products are combinations of parts…
Example: Bicycle
Handle bars (1)
Metal Frame (1)
Wheels (2)
Dependent vs Independent Demand
• Independent Demand
• Dependent Demand
– Demand for an item is
– Demand for a
independent of the demand
component (raw
for other items. These
material, part, subdemands are typically
assembly) is dependent
determined by outside
on the demand for the
customers and are end-item
end-item into which the
demands
component goes.
• demand often occurs in
batches
Bill of Materials (BOM)
• Shows all the assemblies, subassemblies, components,
and raw materials required to produce an item
• Shows way a finished product or parent item is put
together from individual components
• Parent item shown at highest level or level zero
• Parts that go into parent item are called level 1
components and so on
• Production planners explode BOM for level zero item
to determine the number, due dates, and order dates of
subcomponents
Let’s look at an example BOM...
A
Question:
How many D’s we need in
order to produce 50 A’s?
B(2)
D(3)
C(1)
E(3)
D(1)
Schematic of MRP System
Material Requirements Planning (MRP)
• Computer-based information system that
schedules and orders dependent-demand
inventory components;
• Uses the master production schedule, bills of
materials, and inventory records as inputs;
• Outputs recommendations:
– When to release new orders
– When to reschedule open orders.
Let’s look at an example BOM...
A
B(2)
D(3)
C(1)
E(3)
D(1)
How do we manage order release?
We need information on delivery times!
Parts-Product
A
B
C
D
E
Process Lead Time
10
15
10
15
10
Let’s look at an example BOM...
A
(10)
Question:
B(2)
(15)
C(1)
(10)
When do we start
producing/ordering each
part?
(15)
D(3)
E(3)
(10)
D(1)
(15)
Let’s assume that we need 50 units of A…
Delivery date
for final
product
5 days
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Start
assembly for
50 units of A
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Start
assembly for
100 units of B
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Start
assembly for
50 units of C
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Order 300
units of D for
B’s process
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Order 50
units of D for
C’s assembly
Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…
Order 50
units of E for
C’s assembly
Parts-Products
A
B
C
D
E
Summary: How does MRP work?
Material Requirements Planning
Production
Assembly
Customer
Production
Assembly
Production
Units are PUSHED forward according to the plan!
What about JIT/Lean Production?
Production
Assembly
Production
Customer
Assembly
Production
Units are PULLED forward only when needed!
Push/Pull Decoupling Point
Material Requirements Planning
Cheeseburger
Hamburger
Patties
Forecast
Hamburger
Chicken
Patties
Chicken
Sandwich
Units are PUSHED forward to a certain point. Final
configuration (PULL) occurs only when the actual
customer demand occurs.
Lot Sizing in MRP Systems
• MRP generates material orders
• Order sizes/lots can be chosen according to various objectives
•
Lot-for-lot (L4L):
Produce to cover next period
•
EOQ:
Apply the EOQ approximation for yearly demand
•
Least Unit Cost:
Minimize total cost (order + carry) per unit
These are all approximate methods, none is guaranteed to be
optimal. We can apply all of them and find the least-cost one
to implement.
Example
Cost per item:
Order/setup cost:
Inventory carrying cost/month
Starting inventory:
Production lead time
Monthly requirements
1
2
3
4
5
100 50
80
120
70
$10
$47
2%
50
1 month
6
80
For the solution, see file mrp_methods.pdf
MRP Evolution
MRP
Schedule Materials
Closed Loop
MRP
Schedule Materials
Incorporate Feedback
MRP II
Schedule & Purchase Materials
Coordinate w/ Mfg Resources
ERP
Closed-Loop MRP
Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning
No
Realistic?
Feedback
Yes
Execute:
Capacity Plans
Material Plans
Feedback
Manufacturing Resource Planning
(MRP II)

Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
 marketing
 finance
 engineering


Simulate the manufacturing system
ERP Systems


Enterprise Resource Planning Systems
is a computer system that integrates
application programs in accounting,
sales, manufacturing, and other
functions in the firm
This integration is accomplished through
a database shared by all the application
programs
Typical ERP System
Video: ERP at Hillerich & Bradsby

Notes:
Major ERP Providers
Firm
HQ
Acquisitions
2004 Share
of $23.6B
Market
SAP
Germany
Oracle
US
Sage Group
UK
7%
Microsoft
US
3%
Infor
US
40%
People Soft
JD Edwards
SSA
Baan
Source: AMR Research
22%
Reasons to Implement ERP
 Desire
to standardize and improve
processes
 To improve the level of systems
integration
 To improve information quality
ERP Drawbacks
 Cost

$250M+ for a Fortune 100 company
 Transition
pain
Implementation
resources
Training
Resistance
to change
Summary and Conclusions…
Master Production Schedule (MPS)
converts aggregate plan to a detailed
schedule
 Primary inputs to MRP are MPS, BOM’s
(for part relationships) and Inventory
Records (for lead times and inventory
position)
 MRP is a push system but can be used in
conjunction with pull systems
 MRP grew and evolved to include closedloop, Manufacturing Resource Planning
(MRP II), and eventually ERP
