PRODUCTION AND
OPERATIONS
MANAGEMENT
Ch. 15: Material
Requirements Planning (MRP)
POM - J. Galván
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Learning Objectives




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Distinguish dependent from
independent demand inventory
Define material requirements planning
Explain the benefits of MRP
Identify the requirements of MRP, DRP,
and ERP
Explain the inputs & outputs of MRP
Compute order releases
POM - J. Galván
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Dependent versus Independent
Demand
Item
Materials With
Independent Demand
Demand
Source
Company Customers
Materials With
Dependent Demand
Parent Items
Material
Type
Method of
Estimating
Finished Goods
Forecast & Booked
WIP & Raw Materials
Calculated
Customer Orders
Demand
Planning
Method
EOQ & ROP
MRP
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Inputs to the
Production Plan
Marketing
Customer
Demand
Production
Capacity
Inventory
Procurement
Supplier
Performance
Production
Plan
Management
Return on
Investment
Capital
Finance
Cash Flow
Human
Resources
Manpower
Planning
Engineering
Design
Completion
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Requirements for Effective Use of
Dependent Demand Inventory Models
Effective use of dependent demand
inventory models requires that the
operations manager know the:
•
•
•
•
•
master production schedule
specifications or bills-of-material
inventory availability
purchase orders outstanding
lead times
POM - J. Galván
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The Planning Process
Master Production
Schedule
Production Plan
Material
Requirements
Plan
Capacity
Requirements
Plan
No
Realistic??
Yes
Execute Capacity
Plans
Execute Material
Plans
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Typical Level for the
Master Schedule



A customer order in a job shop
(process focused/make to order)
company
Modules in a repetitive (assemble-tostock) company
An end item in a continuous (product
focused/make to stock) company
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Bill-of-Material


List of components & quantities
needed to make product
Provides product structure (tree)
•
•
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Parents: Items above given level
Children: Items below given level
Shows low-level coding
•
•
Lowest level in structure item occurs
Top level is 0; next level is 1 etc.
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Bill-of-Material
Product Structure Tree
Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assy (1)
P/N 1002
Wheels (2)
P/N 1003
Frame (1)
P/N 1004
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Time-Phased Product Structure
Must have D and E
completed here so
production can begin on B
Start
production of D
1 week D 2 weeks to
produce
B
2 weeks
E
A
1 week
2 weeks
2 weeks
1
2
1 week
G
1 week
E
3 weeks
C
F
D
3
4
5
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7
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Material Requirements
Planning (MRP)
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
Manufacturing computer information
system
Determines quantity & timing of
dependent demand items
1
2
G
ro
s
sR
e
q
u
ire
m
e
n
ts
2 2
0
S
c
h
e
d
u
le
dR
e
c
e
ip
ts
5
A
v
a
ila
b
le
3
4
5
2
5 1
5
3
0
2
5 2
3 3
3 3
3 8
N
e
tR
e
q
u
ire
m
e
n
ts
7
P
la
n
n
e
dO
rd
e
rR
e
c
e
ip
ts
7
P
la
n
n
e
dO
rd
e
rR
e
le
a
s
e
s
7
POM - J. Galván
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MRP Requirements

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Computer system
Mainly discrete products
Accurate bill-of-material
Accurate inventory status
•

99% inventory accuracy
Stable lead times
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MRP PURPOSE
• Coordination of Production and Inventory
in large, multi-stage production systems
• Capacity planning, scheduling, supplier
coordination
• Timely dissemination of information
• Synchronized production and procurement
• Central engineering and logistic database
(Central element of the ERP system)
MRP PROBLEMS
• Deterministic model
• Large data requirements and GIGO (Garbage in garbage
out)
• Self-fulfilling lead-times, so then what happens if
fulfilment is not accomplished?
• Difficulty and cost of installation and maintenance
• Centralized command and control mindset
MRP Benefits

Increased customer satisfaction due to meeting delivery
schedules

Faster response to market changes

Improved labor & equipment utilization

Better inventory planning & scheduling

Reduced inventory levels without reduced customer
service
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Variables in MRP
o Master Schedule -WHEN
o Bills of Material -WHAT
o Stocks & Work in Progress (WIP) – HOW
MUCH
o Lead-times – WHEN TO HAVE AVAILABLE
o Work orders / schedules – WHAT TO DO
o Purchase orders / schedules –WHEN TO
ORDER
o Yields – WHAT IS LOST
o Working days / times - CALENDAR
Structure of the MRP System
BOM
(Bill-of-Material)
Master Production
Schedule
MRP by period report
Lead Times
(Item Master File)
MRP by date report
MRP
Programs
Planned orders report
Inventory Data
Purchase requirements
Purchasing data
Exception reports
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MRP and The Production
Planning Process
Forecast &
Firm Orders
Aggregate
Production
Planning
Material
Requirements
Planning
Master
Production
Scheduling
Capacity
Requirements
No
Planning
Realistic?
POM - J. Galván
modify CRP, MRP, or MPS
Resource
Availability
Yes
Shop
Floor
Schedules
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Master Production Schedule
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Shows items to be produced
•

End item, customer order, module
Derived from aggregate plan
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Master Production Schedule

Shows items to be produced
• End item, customer order, module

Derived from aggregate plan
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Example
Item/Week
Oct 3
Oct 10
Oct 17
Oct 24
Drills
300
200
310
300
Saws
300
450
310
330
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MRP Dynamics
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Supports “replanning”
• Problem with system “nervousness”
“Time fence” - allows a segment of the master
schedule to be designated as “not to be
rescheduled”
“Pegging” - tracing upward in the bill-ofmaterials from the component to the parent
item
Manager can react to changes, doesn’t mean
he/she should
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MRP and JIT


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MRP - a planning and scheduling
technique with fixed lead times
JIT - a way to move material
expeditiously
Integrating the two:
• Small
bucket approach and back flushing
• balanced flow approach
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Extensions of MRP
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Closed loop MRP
Capacity planning - load reports
MRP II - Material Resource Planning
Enterprise Resource Planning
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Extensions of MRP
Closed Loop MRP
Production Plan
No
Priority Planning
Capacity Planning
Desired Master
Production
Schedule
Realistic?
Resource
Planning
Material
Requirements
(detailed)
Capacity
Requirements
(detailed)
Priority Control
Capacity Control
Dispatch List
Input/Output
Is
specific capacity
adequate?
First Cut
Capacity
No
No
Is
average capacity
adequate?
Yes
Yes
POM - J. Galván
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Extensions of MRP
Capacity Planning

Tactics for smoothing the load and minimizing the impact
of changed lead time include:
• Overlapping - reduces the lead time, entails sending
pieces to the second operation before the entire lot has
completed the first operation
• Operations splitting - sends the lot to two different
machines for the same operation
• Lot splitting - breaking up the order and running part of
it ahead of the schedule
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Extensions to MRP
Enterprise Resource Planning
MRP II with ties to customers and
suppliers
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MRP in Services

Can be used when demand for
service or service items is directly
related to or derived from demand
for other services
• restaurant
- rolls required for each meal
• hospitals - implements for surgery
• etc.
POM - J. Galván
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Distribution Resource Planning

DRP requires:
• Gross
requirements, which are the same
as expected demand or sales forecasts
• Minimum levels of inventory to meet
customer service levels
• Accurate lead times
• Definition of the distribution structure
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