# The MRP Procedure

```The MRP Procedure.
While the basic ideas of MRP are simple, the details can get very messy. We will go
through the MRP procedure in enough detail to give you the idea of the basic
workings of most commercial MRP systems.
The following notation will be used.
Dt = Gross requirements
St = Quantity currently scheduled to comple in period t, (i.e., a scheduled receipt).
It = Projected on-hand inventory for the end of period t, where current on-hand
inventory is given by I0.
Nt=Net requirement for period t.
With these we will now describe the four basic steps of MRP: netting, lot-sizing,
time-phasing, and BOM explosion.
Netting.
Netting, or coverage analysis, provides two important functions:
 It adjusts scheduled receipts by expediting those that are currently scheduled
to arrive too late and deferring those currently scheduled to arrive too soon
 It computes net demand.
It = It-1 – Dt
Adjusted Scheduled Receipts, Projected On-Hand, and net Requirements.
Part A
Gross requirements
Scheduled receipts
Projected on-hand: 20
Net requirements
Planned order receipts
Planned order releases
1
15
10
2
20
10
3
50
4
10
100
5
30
6
30
7
30
8
30
Lot Sizing. Once we have computed the net requirements, we must schedule
production quantities to satisfy them. For clarity and to illustrate the basic MRP
computations, we restrict our attention at this point to two very simple lot-sizing
rules.
The simplest lot-sizing rule, known as lot-for-lot, states the amount to be
produced in a period is equal to that periods net requirements. This policy is easier
to use than the fixed quantity policy and is consistent with just in time philosophy
of making only what is needed.
Another simple rule is fixed order period (FOP). This rules attempts to reduce the
number of setups by combining the net requirements of P periods. Note that when
P=1, FOP is equivalent to lot-for-lot. Returning to our example, assume that the
lot-sizing rule for part A is fixed with period 2.
Part A
Gross requirements
Scheduled receipts
Projected on-hand: 20
Net requirements
Planned order receipts
Planned order releases
1
15
10
2
20
10
3
50
4
10
100
5
30
6
30
7
30
8
30
Time phasing. Almost universally, MRP systems assume that the time to make a
part is fixed, although a few systems do allow for the planned lead time to be a
function of the job size. Now we will return to our example and assume that the
planned lead time for the part A is two periods, we are able to compute the
planned order releases.
Part A
Gross requirements
Scheduled receipts
Projected on-hand: 20
Net requirements
Planned order receipts
Planned order releases
1
15
10
2
20
10
3
50
4
10
100
5
30
6
30
7
30
8
30
BOM Explosion. In the last table we can see final result of processing part A.
Recall that part A is made of 1 unit of part B and 2 units of part C. Thus the
planned order releases generated for part A create gross requirements for parts B
and C. Specifically we need 90 units of part C in period 4 (two are needed for
each unit of A) and 60 units for period 6. Lets suppose that there are no scheduled
receipts for part but there are 100 units on the stock, we must calculate planned
order releases by the rule lot-for-lot. The lead time is two periods.
Part C
1
2
3
4
5
6
7
Gross requirements
Scheduled receipts
Projected on-hand: 100
Net requirements
Planned order receipts
Planned order releases
So there are no more levels for unit C, the calculation is completed. Now we
should start the calculations for the part B, and afterward for the parts D and E.
8
The requirement for the unit B is the same as for the unit A. There are 10 units of
unit B at the stock. The lead time is one period. Lot sizing rule is lot-for-lot
Part B
1
2
3
Gross requirements
Scheduled receipts
Projected on-hand: 10
Net requirements
Planned order receipts
Planned order releases
4
5
45
6
7
8
30
The result will give us important information for next level BOM processing for
parts D and E. The requirement for the part D will be 3 *B part requirement for
part B and the requirement for part E will be 4 * B part requirement.
Part D
1
2
3
105
4
5
150
6
7
8
1
2
3
140
4
5
200
6
7
8
Gross requirements
Scheduled receipts
Projected on-hand: 10
Net requirements
Planned order receipts
Planned order releases
Part E
Gross requirements
Scheduled receipts