MRP and Related Concepts
TLA (Three Letter Acronym) Definitions
ATP: Available to Promise
BOM: Bill of Materials
DRP: Distribution Requirements Planning
MPS: Master Production Schedule
MRP: Materials Requirements Planning
PAC: Production Activity Control
SOP: Sales and Operations Planning
1
Where Does MRP Fit?
PAC
SOP
Tactical Capacity Planning
MPS
Production, Order Fulfillment, Cushions
MRP
Material Quantities and Timing
Vendor Order
Managment
Supply Chain Management and PDCA
Production Management and PDCA
2
Master Scheduling I
• Controls the timing and quantity of production
for products or product families
• Primary interface point for actual customer
orders
• Coordinates forecasted demand and actual
orders with production activity
• Serves as tool for agreement between
marketing and operations (but at a different
level than SOP)
3
Master Scheduling II
• Feeds more detailed material planning
• Indicates the quantity and timing (i.e., delivery
times) for a product or group of products
• More detailed than SOP
weekly versus monthly
specific products versus “average”
must satisfy the needs of marketing
must be feasible for operations
4
Link between SOP
and MPS
Month:
Output:
January
200
February
300
March
400
January (weeks)
1
2
3
4
Push Mowers
Self-propelled
Riding
25
25
35
25
25
40
12
SOP
MPS
13
5
MPS Formulas: Definitions
• ATPt = Available to promise in period t
• EIt = Ending Inventory for period t (same as
projected on-hand inventory for next period)
• Ft = Forecasted demand for period t
• MPSt = MPS quantity available in period t
• OBt = orders booked for period t
6
MPS Formulas:
EI t  EI t 1  MPSt  max( Ft , OBt )
z 1
ATPt  EI t 1  MPSt   OBi
i t
where z  period when next positive MPSt is due
7
Detailed MPS for Widgets
On-hand inventory at end of October =
Month
Week
100
November
December
45
46
47
48
49
50
51
52
Forecast Demand
150
150
150
150
125
125
125
125
Orders Booked
170
165
140
120
85
45
20
0
Master Schedule
300
0
300
0
250
0
250
0
Notes:
 Planning time fence  cumulative lead time for product
 What seems to be the lot-sizing rule here?
8
Projected On-Hand Inventory
On-hand inventory at end of October =
Month
Week
100
November
December
45
46
47
48
49
50
51
52
Forecast Demand
150
150
150
150
125
125
125
125
Orders Booked
170
165
140
120
85
45
20
0
Projected On-Hand
Inventory
230
65
215
65
190
65
190
65
Master Schedule
300
0
300
0
250
0
250
0
i.e. Projected on-hand inventory for week 47: = 65 + 300 – 150 = 215
9
Available-to-Promise
On-hand inventory at end of October =
Month
Week
100
November
December
45
46
47
48
49
50
51
52
Forecast Demand
150
150
150
150
125
125
125
125
Orders Booked
170
165
140
120
85
45
20
0
Projected On-Hand
Inventory
230
65
215
65
190
65
190
65
Master schedule
300
0
300
0
250
0
250
0
Available-to-Promise
65
40
120
70
230
ATP(45) = 100 + 300 – (170 + 165) = 65
ATP(47) = 300 – (140+120) = 40
ATP(49) = 250 – (85 + 45) = 120
10
Change in Forecast Demand
On-hand inventory at end of October =
Month
Week
100
November
December
45
46
47
48
49
50
51
52
Forecast Demand
150
150
150
150
150
150
150
150
Orders Booked
170
165
140
120
85
45
20
0
Projected On-Hand
Inventory
230
65
215
65
165
15
115
(35)
Master schedule
300
0
300
0
250
0
250
0
Available-to-Promise
65
40
120
230
Are we in trouble yet?
11
Change in Orders Booked
On-hand inventory at end of October =
Month
Week
100
November
December
45
46
47
48
49
50
51
52
Forecast Demand
150
150
150
150
125
125
125
125
Orders Booked
170
230
140
120
85
45
20
0
Projected On-Hand
Inventory
230
0
150
0
125
0
125
0
Master schedule
300
0
300
0
250
0
250
0
Available-to-Promise
0
40
120
230
Note impact of ATP(45) and on-hand inventory projections
12
Key Points about MPS
• Provides more detail than SOP
• Tracks the following information:
– Actual versus forecasted demand
– Available-to-Promise
• This gives sales information for accepting or not
accepting new orders for delivery in a given week
13
A Final View of Master Scheduling
SOP
Marketing
Operations
MPS
Rough-Cut Capacity Plan
14
Material Requirements Planning
• MRP in the planning cycle
• The logic of MRP
– an extended example
• Considerations of MRP
15
Assume that we’ve scheduled 500
chairs to be ready five weeks from now.
. . . Now
what?
16
Material Needed for a Chair
Side rails (2)
Seat
Front legs (2)
Cross bars (2)
Back supports (3)
17
Chair Structure Tree
(aka “Bill of Materials”)
Chair
Leg
Assembly
Legs (2)
Cross
bar
Seat
Side
rails (2)
Back Assembly
Cross
bar
Back
Supports
(3)
18
Graphic Lead-Time
Week 1
Week 2
Week 3
Week 4
Week 5
Back Support (2 weeks)
Side Rails (2 weeks)
Cross Bar (2 weeks)
Back
Assembly
(1 week)
Seats (2 weeks)
Legs (2 weeks)
Leg
Assembly
Cross Bar (2 weeks)
(1 week)
Chair
Assembly
(1 week)
19
Lead-Time Key Points
• To have finished chairs at the beginning
of Week 5, we must begin production
and order materials in Week 1.
• “Exploding” the bill of materials tells us
when to order things.
• Not much we can do to adjust output of
chairs for the next 4 weeks. Why?
20
Material Requirements Planning (MRP)
We need the following inputs:
1. Bill-of-Materials (BOM)
2. Inventory records
3. Master production schedule
We’ll get the following outputs:
1. What items should be ordered
2. When each item should be ordered
3. How much of each should be ordered
21
The MRP Process Starts with the
MPS
Chairs
MPS Due Date
Start Assembly
Lead Time = 1 week
Week
1
2
3
4
5
0
0
0
0 500
0
0
0 500 400
6
400
400
7
400
0
End items are also known as “Level 0” items
22
The “Parent / Child” Relationship
Chairs
LT = 1 week
2
0
0
Week
3
4
0
0
0 500
5
500
400
6
400
400
7
400
0
1
0
2
0
Week
3
4
0 500
5
400
6
400
7
0
0
0
0
0
400
400
0
400
400
0
500
400
1
0
0
MPS Due Date
Start Assembly
Seat
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
0
500
500
400
Where do the gross requirements come from?
Do you understand the MRP logic?
23
Chairs
LT = 1 week
MPS Due Date
Start Assembly
1
0
0
2
0
0
3
0
0
Week
4
0
500
5
500
400
6
400
400
7
400
0
1
0
2
0
3
0
Week
4
500
5
400
6
400
7
0
0
0
0
0
400
400
0
400
400
0
500
400
5
400
6
400
7
0
125
725
275
1000
725
5
400
6
400
7
0
100
400
500
500
200
300
500
200
Seat
Going
Deeper…
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
0
500
500
400
Leg Assembly
LT = 1 week
Minimum Order = 1000
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
25
1
0
2
0
25 0
25 0
Week
3
4
0
500
25 0
525
475
1000
1000
1000
Back Assembly
LT = 1 week
Minimum Order = 250
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
1
0
0
0
2
0
250
250
Week
3
4
0
500
250
250
0
250
250
500
Moving from “Level 1” items
to “Level 2” items . . .
Leg Assembly
LT = 1 week
Minimum Order = 1000
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
1
0
25
2
0
Week
3
4
0
500
5
400
6
400
7
0
125
725
275
1000
725
1
0
Week
2
3
4
5
0 2000
0 2000
6
0
7
0
0
0
0
0
25 0 25 0 25 0
525
475
1000
1000
1000
Legs
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
2000
0
2000
2000
2000
0
0
2000
2000
Where do the gross requirements for LEGS come from?
25
Combining Requirements: “Cross
Bars”
Leg Assembly
LT = 1 week
Minimum Order = 1000
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
25
1
0
2
0
25 0
25 0
Week
3
4
0
500
25 0
525
475
1000
1000
5
400
6
400
7
0
125
725
275
1000
725
1000
Back Assembly
LT = 1 week
Minimum Order = 250
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
1
0
0
0
2
0
250
250
3
0
0
250
Week
4
500
5
400
6
400
7
0
0
250
250
500
100
400
500
500
200
300
500
200
6
0
7
0
0
0
Crossbars
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
1
0
2
3
0 1250
0
0
1250
0
1250
1250
500 1500
Week
4
5
500 1500
0
0
500 1500
500 1500
Note effect of
differences in
lead times and
order sizes on
the gross
requirements
for each
component
26
Impact of Longer Lead Times
Leg Assembly
We cannot do
this since the
planned order
would be in
the past….
Thus the 250
crossbars will
be delivered
late one week
to back
assembly.
What does
this do to our
chair
schedule?
LT = 1 week
Minimum Order = 1000
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
25
1
0
2
0
3
0
250
250
250
Week
4
500
5
400
6
400
7
0
125
725
275
1000
725
5
400
6
400
7
0
100
400
500
200
300
500
200
Week
4
5
500 1000
6
0
7
0
0
0
525
475
1000
1000
1000
Back Assembly
LT = 2 weeks
Minimum Order = 250
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
1
0
0
0
2
0
250
250
3
0
250
500
0
Week
4
500
0
250
250
500
Crossbars
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
1
0
2
3
250 1500
0
0
0
250 1500
250 1500
500 1000
250 1500
0
0
500 1500
500 1500
27
Do You Understand ...
• Why it is important to have an accurate
BOM and accurate inventory information?
• Why do we need to “freeze” production
schedules?
• Where do gross requirements come from?
• The is the difference between planned and
scheduled receipts?
28
Other Considerations I
MRP
Feedback
Feedback
Planned Orders
Production
Suppliers
29
Other Considerations II
• When do we update the system?
• Capacity requirements planning using
MRP output
• “Pegging”
• Lot sizing issues
30
Recall ...
Leg Assembly
LT = 1 week
Minimum Order = 1000
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
25
1
0
2
0
250
250
Week
3
4
0
500
5
400
6
400
7
0
125
725
275
1000
725
1
0
Week
2
3
4
5
0 2000
0 2000
6
0
7
0
0
0
0
0
250
525
475
1000
1000
1000
Legs
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
2000
0
2000
2000
2000
0
0
2000
2000
Look at the “lumpiness” of demand for legs
31
If we order “lot-for-lot”
Leg Assembly
LT = 1 week
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
25
1
0
2
0
250
250
Week
3
4
0
500
5
400
6
400
7
0
0
475
475
400
0
400
400
400
0
400
400
0
Week
3
4
950
800
5
800
6
0
7
0
0
800
800
0
0
250
475
Legs
LT = 2 weeks
Minimum Order = 1
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Receipts
Planned Order
0
1
0
2
0
0
0
950
800
0
950
950
800
0
800
800
Much smoother demand for legs, lower average inventory
32
Distribution Requirements Planning
(DRP)
• Anticipates downstream demand
– Uses this information, not predetermined
reorder points or periodic reviews, to
determine when to order
• Computer-based software systems
needed to deal with the added
complexity
33
DRP Example I
Wholesaler A
ROP = 50, Q = 200
Forecast Demand
Ending Inventory
Expected Order
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
20
20
20
20
20
20
20
20
85
65
45 225 205 185 165 145 125
200
Suppose we forecast demand for Wholesaler A for the
next 8 days (the best time horizon to use will
depend on many factors)
Based on this, we anticipate that Wholesaler A will
order on Day 3
34
DRP Example II
Wholesaler A
ROP = 50, Q = 200
Forecast Demand
Ending Inventory
Expected Order
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
20
20
20
20
20
20
20
20
85
65
45
225
205
185
165
145
125
200
Wholesaler B
ROP = 75, Q = 200
Forecast Demand
Ending Inventory
Expected Order
Total Orders
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
14
14
14
14
14
14
14
14
108
94
80
66
252
238
224
210
196
200
200
200
We extend the analysis to include Wholesaler B
Combined, we expect to see orders on Days 3 and 4
35
DRP Example III
Wholesaler A
ROP = 50, Q = 200
Forecast Demand
Ending Inventory
Expected Order
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
20
20
20
20
20
20
20
20
85
65
45
225
205
185
165
145
125
200
Wholesaler B
ROP = 75, Q = 200
Forecast Demand
Ending Inventory
Expected Order
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
14
14
14
14
14
14
14
14
108
94
80
66
252
238
224
210
196
200
Distributor
Q = 400
Total Expected Orders
Ending Inventory
Planned Receipts
Planned Orders
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
200
200
50
50
50
250
50
50
50
50
50
400
400
The distributor then uses this information to plan its own
orders. In this case, suppose it takes two days for the supplier
to replenish; based on the information, the distributor would
order on Day 1
36
DRP Benefits
 Helps improve customer service
 Provides a better and faster understanding of
the impact of shortages and/or promotions
 Helps reduce costs
 Inventory
 Freight
 Production
 Provides integration between the stages in
the supply chain
37
DRP Constraints
• Accurate forecasts and inventory levels
– Necessary to anticipate correctly when orders will be
placed
• Consistent and reliable lead times
– To ensure that orders can be placed and arrive by the
time they are needed
• “Nervousness”
– Even slight changes in demand for downstream partners
can have a significant impact on order volumes,
especially when order sizes are relatively high
38