6. Material Requirements Planning (MRP)
Homework problems: 2,6,7,8,9,13.
1. MRP Foundation
 Material
requirements planning (MRP):

A computer-based information system that
translates master schedule requirements for end
items into time-phased requirements for
subassemblies, components, and raw materials.
 The MRP is designed to answer three questions:
1.
2.
3.
What is needed?
How much is needed?
When is it needed?
1. MRP Foundation

Dependent demand

Demand for items that are subassemblies or
component parts to be used in the production
of finished goods.
 Dependent demand tends to be sporadic or
“lumpy”

Large quantities are used at specific points in
time with little or no usage at other times
1. MRP Foundation
What went wrong when EOQ is used to manage a
dependent demand item ?

Incorrect assumption of uniform, continuous
demand

Incorrect assumption on item independence

Lack of Forward visibility
Overview of MRP
6
MPR Inputs

Master Production Schedule (MPS)
 Bill of Materials (BOM)
 Inventory Records
7
Product structure tree example
8
MRP Inputs: Inventory Records

Inventory records/status data

Includes information on the status of each item by
time period, called time buckets

Information about




Gross requirements
Scheduled receipts
Expected amount on hand
Other details for each item such as





Supplier
Lead time
Lot size
Changes due to stock receipts and withdrawals
Canceled orders and similar events
9
MRP Record
Week
1
2
3
4
5
6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Gross requirements
• Total expected demand
Scheduled receipts
• Open orders scheduled to arrive
Projected Available
• Expected inventory on hand at the beginning of each
time period
10
MRP Record
Week Number
1
2
3
4
5
6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Net requirements
• Actual amount needed in each time period
Planned-order receipts
• Quantity expected to received at the beginning of the
period offset by lead time
Planned-order releases
• Planned amount to order in each time period
11
Manufacturing Planning and Control System
Sales and operations
planning
Master production
scheduling
Routing
file
Bills of
material
Detailed capacity
planning
Detailed material
planning
Demand
management
Front End
Inventory
status
data
Time-phased
requirement (MRP)
records
Engine
Material and
capacity plans
Shop-floor
systems
Supplier
systems
Enterprise Resource Planning (ERP) System
Resource
planning
Back End
6-12
MPR: Development


The MRP is based on the product structure tree diagram
Requirements are determined level by level, beginning
with the end item and working down the tree


The timing and quantity of each “parent” becomes the
basis for determining the timing and quantity of the
children items directly below it.
The “children” items then become the “parent” items for
the next level, and so on
13
MRP: Updating PAB
PABt=PABt-1 + SRt + PRt - GRt




PAB: projected available balance
SR: scheduled receipts
PR: planned order receipts
GR: gross requirements
14
Basic MRP Record
A previously
released order
due in period 1
Requirements
from all
sources
On hand 1
Gross requirements
3
10
Scheduled receipts
Projected available balance (PAB)
2
Period
4
5
40
10
4
44
50
4
54
44
44
Net requirements
6
Planned order receipts
50
Planned order releases
Lead time = 1 period
Lot size = 50
50
A unreleased
order due in
period 5
6-15
Bill of Materials
The BOM shows
the components
and subassemblies
required to
produce one unit
of product
Indented Bill of Materials
Finished item is not indented
Level 2 sub-assemblies
Level 1 sub-assemblies
Level 1 components
Components and sub-assemblies are indented relative to their
order of usage
Indented BOM example
Finished product is
located at the top,
components below
Sub-assemblies
are represented
by separate
levels
MRP Explosion
• Explosion–the process of translating product
requirements into component part requirements
– Considers existing inventories and scheduled receipts
• Calculating the quantities of all components
needed to satisfy requirements for any given part.
– Continued until all parts have been considered,
leading to exact requirements for all purchased and/or
raw material parts
Gross and Net Requirements
• Gross requirements represent the total planned
100 req’d –
usage for the part
25 inventory
= 75 net
• Net requirements account for existing
req’d
inventory and/or scheduled receipts
Net req’d for
assembly
becomes gross
req’d for
component
75 req’d – 22
inventory – 25
sched. rec. =
28 net req’d
Product Structure Tree & Low level coding
21
Low-Level Coding

Low-level coding

Restructuring the bill of material so that multiple
occurrences of a component all coincide with the
lowest level at which the component occurs
X
Level 0
Level 1
B(2)
Level 2
D(3)
Level 3
E(4)
C
F(2)
E
E(2)
22
Low Level Coding
Level 0
Level 1
Level 2
Level 3
14127 Rivet is
a common part.
It belongs to
Level 2, not 1.
MPR Lot Sizing Rules (L4L)
 Lot-for-Lot
(L4L) ordering
 The order or run size is set equal to the
demand for that period
 Minimizes investment in inventory
 It results in variable order quantities
 A new setup is required for each run
24
MPR Lot Sizing Rules (EOQ)
 Economic
Order Quantity (EOQ)
 Also called fixed order quantity (FOQ)
 Can lead to minimum costs if usage of
item is fairly uniform


This may be the case for some lower-level
items that are common to different ‘parents’
Less appropriate for ‘lumpy demand’ items
because inventory remnants often result
25
MPR Lot Sizing Rules (POQ)
 Fixed
Period Ordering (POQ)
 Provides coverage for some
predetermined number of periods
 When an order is planned (i.e., planned
order receipts), it should be sufficient to
cover the next P periods (e.g., p=3)
26
Example MRP
27
Example MRP: L-4-L ordering
28
Example MRP: EOQ
29
Lead Time Offsetting
• Gross to net explosion shows how much of
each part is required, but not when
• Timing requires consideration of two factors
– Lead times–how long does it take to obtain the
component or sub-assembly
– Precedent relationships–the order in which parts
must be assembled
• MRP considers both factors when developing
the plan
Scheduling Logic
• Two common approaches to scheduling exist
– Front schedule–schedule each step as early as
possible. This approach is simple, but parts are
scheduled (and finished) earlier than need be, thus
increasing WIP inventory.
– Back schedule–schedule each step as late as
possible. This approach will reduce WIP, minimize
storage (and time) of completed parts, reserve
flexibility (postpone the commitment or raw
materials to specific products), but it requires
accurate BOM data and lead time estimation.
Scheduling Logic and MRP
• MRP combines back scheduling and
performs the gross requirements to net
requirements explosion.
– Reduced inventories
– Minimized storage time
Back Scheduling
Top handle assembly
has the longest
duration of any subassembly
Scoop assembly must
be complete before
final assembly can
begin
Only when all subassemblies and
components are
available can final
assembly begin
MRP Records
Planned order release for
top handle assembly
becomes gross requirement
for top handle component
and nail (note 2 nails
required per assembly)
Lot-for-lot order policy
exactly matches supply
to net requirements
Fixed lot size order policy
requires orders in multiples
of lot size
MRP Technical Issues
• Processing frequency–recalculating all records and
requirements is called regeneration
– This is a computationally intensive process so it is often run in
the background and during periods of low system demand
• Net change approach only recalculates those records that
have experienced changes
• Less frequent processing results in an out-of-date picture
• More frequent processing increases computer costs and
may lead to system nervousness
Safety Stock & Safety Lead Time
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may
cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or
assembly times are longer than expected
When lead times are variable, the concept of safety lead
time is often used
Safety Lead Time (see Fig. 6.9)
– Scheduling orders for arrival or completion
sufficiently ahead of their need that the probability of
shortage is eliminated or significantly reduced
Safety Stock & Safety Lead Time
• Safety stock is buffer stock over and above the
quantity needed to satisfy gross requirements
– Used when quantity uncertainty is the issue
• Safety lead time changes both the release and
due date of shop and/or purchase orders to
provide a margin for error
– Used when timing of orders is the issue
– Safety lead time is not just an inflated lead time
Pegging
• Pegging provides a link between demand
(order releases, customer orders, etc.) and the
gross requirements for parts
– Pegging records include the specific part numbers
associated with a gross requirement
– Pegging information can track the impact of a
problem (e.g. material shortage) back to the
order(s) it will affect
Firm Planned Orders
• Regeneration of the MRP records can lead to
large numbers of planned order changes
• To avoid this, a planned order can be
converted to a firm planned order (FPO)
– An FPO is not the same as a scheduled delivery,
but can’t be changed by the MRP system
– Temporarily overrides the MRP system to provide
stability or to solve problems
Planning Horizon
• Total amount of time included in MRP
calculations
– Longer planning horizon increases computational
requirements
– Shorter planning horizon may result in lesseffective plans if significant future demand is not
visible
– At a minimum, should cover the cumulative lead
time for all finished goods items
Scheduled Receipts vs. Planned Order Releases
• Scheduled receipts represent an actual commitment
(purchase order, production order, etc.)
• Planned orders are only the current plan and can be
changed more easily
• Scheduled receipts for production orders already have
component materials assigned
– Scheduled receipts do not impact gross requirements
• Planned order releases do not have component materials
assigned
– Planned order releases do impact gross requirements
MRP Processing Example
Note: Component D is required by two parents.
MRP Processing Example
MRP Planner Tasks
Release
Reschedule
Analyze and Update
Reconcile
Identify Problems
Solve Shortages
Enhance
• Purchase orders
• Shop floor (production) orders
• Change due dates of existing orders (when desirable)
• Set lot sizes and lead times
• Adjust scrap allowances and safety stocks
• Identify errors and inconsistencies and eliminate their root causes
• Take action now to prevent future crises
• Adjust records and system parameters to prevent recurrence
• Identify system enhancements to improve performance
Exception Codes
Separating the vital few from the
trivial many
Part numbers
with planned
orders in the
immediate
period
Requirements
that cannot be
Orders with
satisfied within
unsatisfactory
system
timing or
parameters
quantity
(management
input needed)
Bottom-Up Replanning
• Using pegging data to guide efforts to solve
material shortages
– Pegging data allows the planner to take action
only when actual customer orders are impacted
MRP System Output
Part number and description
MRP system data
MRP planning data
Exception messages
MRP System Dynamics
MRP System Issues
Transactions
during a
period–
unexpected
changes
Procedural
Rescheduling–
Complex
inadequacies–
transactions–
moving the
situations the
due date of
inventory
system
an order to
adjustments,
wasn’t
an earlier or service parts,
designed to
later date
etc.
handle
System Dynamics
An MRP is not a static document
As time goes by
Some orders get completed
Other orders are near completion
New orders will have been entered
Existing orders will have been altered
Quantity changes
Delays
Missed deliveries
– See Figure 6.11,6.12,6.13
Principles
• Effective use of an MRP system allows development of a
forward-looking approach to managing material flows.
• The MRP system provides a coordinated set of linked product
relationships, which permits decentralized decision making for
individual part numbers.
• All decisions made to solve problems must be implemented
within the system, and transactions must be processed to reflect
the resultant changes.
• Effective use of exception messages allows attention to be
focused on the “vital few” rather than the “trivial many.”
10. XYZ Company
Item A; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
Period
1
2
3
4
5
6
7
8
9
10
Gross Requirements
71
46
49
55
52
47
51
48
56
51
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.
Item B; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
Period
1
2
3
4
5
6
7
8
9
10
Gross Requirements
77
83
90
22
10
10
16
19
27
79
Scheduled Receipts
Proj. Available Bal.
Planned Order Rel.
150
10. XYZ Company
Item A; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period
1
2
3
4
5
6
7
8
9
10
Gross Requirements
71
46
49
55
52
47
51
48
56
51
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.
Item B; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period
1
2
3
4
5
6
7
8
9
10
Gross Requirements
77
83
90
22
10
10
16
19
27
79
Scheduled Receipts
Proj. Available Bal.
Planned Order Rel.
150
14. ABC Manufacturing Company
a. Component C (Q=40, LT=2, SS=0)
1
2
3
4
5
6
1
2
3
4
5
6
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release
b. Component C (Q=40, LT=2, SS=0)
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release