MRP
Learning Objectives




Describe the conditions under which MRP
is most appropriate.
Describe the inputs, outputs, and nature of
MRP processing.
Explain how requirements in a master
production schedule are translated into
material requirements for lower-level items.
Discuss the benefits and requirements of
MRP.
Learning Objectives
 Explain how an MRP system is useful in
capacity requirements planning.
 Outline the potential benefits and some of
the difficulties users have encountered with
MRP.
 Describe MRP II and its benefits.
 Describe ERP, what it provides, and its
hidden costs.
MRP
 Material requirements planning (MRP):
Computer-based information system that
translates master schedule requirements
for end items into time-phased
requirements for subassemblies,
components, and raw materials.
End products
MRP
Time-phase based
• Subassemblies
• Components
• Raw materials
Independent and Dependent
Demand Independent Demand
Dependent Demand
A
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain.
Dependent demand is certain.
Dependant Demand
 Dependent demand: Demand for
items that are subassemblies or
component parts to be used in
production of finished goods.
 Once the independent demand is
known, the dependent demand can be
determined.
Stable demand
Demand
Demand
Demand
Time
Amount on hand
Amount on hand
Time
“Lumpy” demand
Safety stock
Time
Time
Overview of MRP
MRP Inputs
MRP Processing
MRP Outputs
Changes
Order releases
Master
schedule
Planned-order
schedules
Primary
reports
Bill of
materials
Inventory
records
MRP computer
programs
Exception reports
Planning reports
Secondary
reports
Performancecontrol
reports
Inventory
transaction
MPR Inputs
 Master Production Schedule
 Time-phased plan specifying timing and
quantity of production for each end item.
 Material Requirement Planning Process
Master Schedule
Master schedule: One of three primary
inputs in MRP; states which end
items are to be produced, when
these are needed, and in what
quantities.
Cumulative lead time: The sum of the
lead times that sequential phases of
a process require, from ordering of
parts or raw materials to completion
of final assembly.
Planning Horizon
Assembly
Subassembly
Fabrication
Procurement
1
2
3
4
5
6
Time Period (weeks)
7
8
9
10
Bill-of-Materials
Bill of materials (BOM): One of the three
primary inputs of MRP; a listing of all of the raw
materials, parts, subassemblies, and assemblies
needed to produce one unit of a product.
Product structure tree: Visual depiction of the
requirements in a bill of materials, where all
components are listed by levels.
Low-level coding: Restructuring the bill of
materials so that multiple occurrences of a
component all coincide with the lowest level the
component occurs
Product Structure Tree
Level
0
1
Chair
Leg
Assembly
Seat
Cross
bar
2 Legs (2)
Level
0
Back
Assembly
Side Cross
Back
Rails (2) bar Supports (3)
X
1
X
B (2)
2
D (3)
3
E (4)
C
E
E (2)
B (2)
F (2)
C
D (3)
E
E (2)
E (4)
E
E (2)
F (2)
Inventory Records
 One of the three primary inputs in MRP
 Includes information on the status of
each item by time period






Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more …
Inventory Requirements
 Net requirements:
Net Requirements = Gross Requirements
– Available Inventory
 Available Inventory:
Available Inventory = Projected on hand
– Safety stock
– Inventory allocated to
other items
Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of
raw material F
Final assembly
and inspection
Procurement of
part C
Procurement of
part H
Fabrication
of part G
Procurement of
raw material I
1
2
Subassembly B
3
4
5
6
7
8
9
10
11
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)
Lead time
A
B
C
D
E
F
G
2 weeks to
produce
B (2)
2 weeks
E (2)
A
2 weeks
1 week
E (2)
2 weeks
1 week
G (1)
C (3)
3 weeks
F (2)
1 week
D (2)
|
|
|
1
2
3
|
|
4
5
Time in weeks
|
|
|
6
7
8
1
2
1
1
2
3
2
weeks
weeks
weeks
weeks
weeks
weeks
weeks
Gross Requirements Plan
1
A.
B.
C.
E.
F.
D.
G.
2
3
Week
4
5
6
Required date
Order release date
8 Lead Time
50
50
Required date
Order release date
1 week
100
100
Required date
Order release date
2 weeks
150
150
Required date
Order release date
200
200
Required date
Order release date
1 week
300
300
2 week
300
300
Required date
Order release date
Required date
Order release date
7
3 weeks
600
600
200
200
1 week
300
300
2 week
Net Requirements Plan
Net Requirements Plan
MRP Processing
 Gross requirements
 Schedule receipts
 Projected on hand
 Net requirements
 Planned-order receipts
 Planned-order releases
MPR Processing
 Gross requirements
 Total expected demand
 Scheduled receipts
 Open orders scheduled to arrive
 Projected on hand
 Expected inventory on hand at the
beginning of each time period
MPR Processing
 Net requirements
 Actual amount needed in each time period
 Planned-order receipts
 Quantity expected to be received at the
beginning of the period
 Offset by lead time
 Planned-order releases
 Planned amount to order in each time
period
Lot-Sizing Techniques
 Lot-for-lot techniques order just what
is required for production based on
net requirements
 May not always be feasible
 If setup costs are high, costs may be
high as well
 Economic order quantity (EOQ)
 EOQ expects a known constant
demand and MRP systems often deal
with unknown and variable demand
Lot-Sizing Techniques
 Part Period Balancing (PPB) looks at
future orders to determine most
economic lot size
 EPP = setup cost / holding cost
 Programming technique
 Assumes a finite time horizon
 Effective, but computationally
burdensome
Lot-for-Lot Example
Week
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
0
0
0
0
0
0
0
0
0
30
40
0
10
40
30
0
30
55
30
40
10
40
30
30
55
40
30
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
30
40
10
30
55
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
Lot-for-Lot Example
No on-hand inventory is carried through the system
Total holding cost
= $0
1
2
3
4
5
6
7
8
9
10
Gross
30
40 this
0
10
30
0
30
There
are seven 35
setups
for
item40in this
plan
requirements
Total
setup cost = 7 x $100 = $700
Scheduled
55
receipts
Projected on
hand
Net
requirements
35
35
0
0
0
0
0
0
0
0
0
0
30
40
0
10
40
30
0
30
55
30
40
10
40
30
30
55
40
30
Planned order
receipts
Planned order
releases
30
40
10
30
55
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
EOQ Lot Size Example
Week
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
43
3
3
66
26
69
69
39
0
30
0
0
7
0
4
0
0
16
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
73
73
73
73
73
73
73
73
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units
EOQ Lot Size Example
Annual demand = 1,404
Total cost = setup cost + holding cost
1
2
3
4
5
6
7
9
10
Total cost = (1,404/73)
x $100
+ (73/2)
x ($1
x852 weeks)
Gross cost = $3,798 /year
Total
35
30
40
0
10
40
30
0
30
55
requirements
Cost for 10 weeks = $3,798 x (10/52) = $730
Scheduled
receipts
Or
Projected on
hand
35
35
0
0
0
0
0
0
Net
Total
cost = setup0 cost
+ 0holding
cost
30
0
7
0
4
requirements
Total cost = 4 x $100 + 318 x ($1 /weeks)
Planned order
73
73
73
Total
receiptscost = $718
Planned order
releases
73
73
73
0
0
0
0
0
16
73
73
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units
PPB Example
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
50
10
10
0
60
30
30
0
0
30
0
0
0
40
0
0
0
55
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
80
80
100
100
55
55
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
; EPP = 100 units
PPB Example
Trial Lot Size
(cumulative net
requirements)
Periods
Combined
2
2, 3
2, 3, 4
Gross
requirements
2, 3, 4, 5
2, 3, 4, 5, 6
Scheduled
30
70 1
70
35
80
120
receipts
Combine
periods
Projected
on
35
hand
6
Net
requirements
6, 7
6, 7, 8 order
Planned
6, 7, 8, 9
receipts
Planned
order
Combine
releases
10
40
70
70
100
Part Periods
0
2 40 =3 40 x41
5
6
40 = 40 x 1
30
40
0
10
40
70 = 50 x 1 + 10 x 2
230 = 90 x 1 + 50 x 2
+ 40 x 1
Costs
Holding Total
Setup
7
8
9
10
30
0
30
55
100 + 70 = 170
2 - 5 as this results in the Part Period
closest to the EPP
0
30 = 30 x 1
30 = 30 x 1
120 = 60 x 1 + 30 x 2
100 + 120 = 220
periods 6 - 9 as this results in the Part Period
closest to the EPP
0
100 + 0 = 100
Holding cost = $1/week;
$100;+ 190 = 490
Total cost Setup cost = 300
55
EPP = 100 units
Lot-Sizing Summary
For these three examples
Lot-for-lot
EOQ
PPB
$700
$730
$490
Wagner-Whitin would have yielded a plan
with a total cost of $455 for this example
Example
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
50
10
10
0
30
0
0
55
0
30
0
0
0
40
0
0
30
0
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
80
80
70
70
85
85
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
; EPP = 100 units
Lot-Sizing Summary
 In theory, lot sizes should be recomputed
whenever there is a lot size or order
quantity change
 In practice, this results in system
nervousness and instability
 Lot-for-lot should be used whenever
economical
 Lot sizes can be modified to allow for
scrap, process constraints, and purchase
lots
Lot-Sizing Summary
 Use lot-sizing with care as it can cause
considerable distortion of requirements
at lower levels of the BOM
 When setup costs are significant and
demand is reasonably smooth, PPB,
Wagner-Whitin, or EOQ should give
reasonable results
Updating the System
 Regenerative system
 Updates MRP records periodically
 Net-change system
 Updates MPR records continuously
MRP Primary Reports
 Planned orders - schedule indicating
the amount and timing of future orders.
 Order releases - Authorization for the
execution of planned orders.
 Changes - revisions of due dates or
order quantities, or cancellations of
orders.
MRP Secondary Reports
 Performance-control reports
system evaluation, deviation, late
delivery, stockouts
 Planning reports
useful for forecasting future
inventory, assess future material
requirement
 Exception reports
late or overdue orders, excessive
scrap rate, requirement of nonexisting parts
Material Checking &
Balancing
 Use for monitoring of amount of part and
product during processes
 Needs information to balance materials
Accumulative production planning or target
plan
BOM or Assembly diagram
 Normally periodic checked
Material Checking &
Balancing
G
C
B
Assembly diagram
D
I
H
E
A
K
J
F
Week
Accumulative production
9 8 7 6 5 4 3 2 1 0
Balancing chart
Target Plan
J
F
M
A
M
J
J
A
S
O
N
D
A
B
C
D
E
F
G
H
I
J
K
Resource Requirements Profile
Capacity exceeded
in periods 4 & 6
150 –
Lot
11
Lot
6
100 –
Lot
1
Lot
2
50 –
Lot
3
–
1
2
Lot
7
Lot
9
Available
capacity
Lot
15
Lot
12
Lot
4
Lot
Lot 8
5
3
Lot
Lot
10 Lot 14
13
4 5
Period
(a)
Lot
16
Standard labor hours
Standard labor hours
200 –
200 –
Lot 6 “split”
Lot 11 moved
150 –
Available
capacity
Lot
6
100 –
Lot
1
50 –
Lot
3
–
6
7
8
Lot
2
1
2
Lot
7
Lot
9
Lot
11
Lot
12
Lot
15
Lot
Lot
10 Lot 14
13
Lot
16
Lot
4
Lot
Lot 8
5
3
4 5
Period
(b)
6
7
8
Smoothing Tactics
1. Overlapping
 Sends part of the work to following
operations before the entire lot is complete
 Reduces lead time
2. Operations splitting
 Sends the lot to two different machines for
the same operation
 Shorter throughput time but increased setup
costs
3. Lot splitting
 Breaking up the order into smaller lots and
running part ahead of schedule
Other Considerations
 Safety Stock
 Lot sizing



Lot-for-lot ordering
Economic order quantity
Fixed-period ordering
MRP in Services
 Food catering service
 End item => catered food
 Dependent demand => ingredients for
each recipe, i.e. bill of materials
Benefits of MRP
 Low levels of in-process inventories
 Ability to track material requirements
 Ability to evaluate capacity requirements
 Means of allocating production time
 Ability to easily determine inventory usage by
backflushing
 Backflushing: Exploding an end item’s bill of
materials to determine the quantities of the
components that were used to make the item.
Requirements of MRP
 Computer and necessary software
 Accurate and up-to-date

Master schedules

Bills of materials

Inventory records
 Integrity of data
MRP II
 Expanded MRP with emphasis
placed on integration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing
MRP II
Manufacturing
Master
production schedule
Marketing
Production
plan
MRP
Rough-cut
capacity planning
Capacity
planning
Adjust
production plan
Yes
Problems?
No
Requirements
schedules
No
Problems?
Adjust master schedule
Market
Demand
Finance
Yes
ERP
 Enterprise resource planning (ERP):
 Next step in an evolution that began with
MPR and evolved into MRPII
 Integration of financial, manufacturing, and
human resources on a single computer
system.
ERP Software
 ERP software provides a system to capture and
make data available in real time to decision
makers and other users in the organization
 Provides tools for planning and monitoring
various business processes
 Includes
 Production planning and scheduling
 Inventory management
 Product costing
 Distribution
MRP in Services
 Service applications such as:









Professional services
Postal services
Retail
Banking
Healthcare
Higher education
Engineering
Logistical services
Real estate
ERP Strategy Considerations




High initial cost
High cost to maintain
Future upgrades
Training