BMGT 583: Chapter 15 –Resource Planning
Independent versus dependent demand items:

Independent demand items are items whose demand does not depend upon the
demand of other items. Finished goods are independent demand items.

Dependent demand items are items whose demand depends upon the demand of
other items. WIP and raw-materials inventory are dependent demand items.
Parent/Component
 Any product manufactured from one or more components is a parent.
 An item used to manufacture a parent is a component.
Materials Requirement Planning (MRP)
MRP is a computerized information system used by companies to manage and schedule
the production of dependent demand inventory.
Inputs to MRP (Figure 15.4, page 630)
1. Bill of materials (BOM)
2. Master Production Schedule (MPS)
3. Inventory record
BOM
A structured list of parts and materials required for one unit of the finished item
(Figure 15.5, page 631). In the BOM structure tree, the number within parenthesis
indicates the number of units of the component needed for one unit of the parent.
Low-Level code
Each item in a BOM is given a code based on the level at which it appears in the
BOM structure. The item at the top level of the BOM structure, namely the finished
item, is given a low-level code of zero. Items appearing in the next lower level of the
BOM structure are given a low-level code of 1, and so on. If the same item appears
in two different levels, then the low-level code of the item is determined based on the
lowest level at which it appears
MPS
MPS is a production schedule for finished items. It specifies number of finished products
to be made and when. Usually, MPS is prepared for a planning period of 8 to 12 weeks.
MPS must be consistent with aggregate plan and capacity available.
Inventory Record
An inventory record shows an item’s lot size policy, lead time, gross requirements,
scheduled receipts, projected on-hand, planned receipts, and planned order releases.
Time bucket: The time unit of each period in MRP is called a bucket.
Gross requirement: Total demand derived from the planned order releases of all parent
items.
Scheduled receipts: Outstanding orders that will become available in a specified future
time period.
Projected on-hand inventory: An estimate of the inventory available on-hand at the end
of a given period after satisfying the gross requirement.
Projected on-hand inventory (POI) for end of week t =
(POI for end of week t-1) + (Scheduled receipts for week t)
– (Gross requirement for week t)
Planned Order Receipt: Planned order receipt quantity such that the POI does not drop
below zero. Three methods are discussed for determining this quantity, (i) Fixed Order
Quantity, (ii) Periodic Order Quantity, and (iii) Lot for lot. These are also called Lot
Sizing rules.
Planned Order Releases: A planned order release indicates when an order for a specified
planned order receipt must be released. Typically, the quantity of the planned order
release will be exactly the same as the quantity as planned order receipt. However, the
release date is determined by subtracting the receipt date by the lead time.
Input/Output Control chart
I/O Control chart tracks (i) deviation between planned and actual inputs and outputs, and
(ii) backlog.
Backlog = Previous backlog + Actual input – Actual output