CHAPTER 18
Materials Requirements
Planning
Learning Objectives
1.
2.
3.
4.
Describe what MRP is and where it is best
applied.
Understand the source of the information
used by the system.
Demonstrate how to do an MRP “explosion.”
Explain how order quantities are calculated
in MRP systems.
Aggregate
product
plan
Firm orders
from known
customers
Engineering
design
changes
Master production
Schedule (MPS)
Bill of
material
file
Material
planning
(MRP
computer
program)
Forecasts
of demand
from random
customers
Inventory
transactions
Inventory
record file
Secondary reports
Primary reports
Planned order schedule for
inventory and production
control
Exception reports
Planning reports
Reports for performance
control
Master Production Schedule (MPS)

Time-phased plan specifying how
many and when the firm plans to
build each end item
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)
The Aggregate Plan and the Master Production
Schedule for Mattresses

LO 2
Master production schedule (MPS): the
time-phased plan specifying how many and
when the firm plans to build each end item
Time Fences



LO 2
Frozen: anything from no changes to
only minor changes
Moderately firm: allow changes so
long as parts are available
Flexible: allow almost any variations
Demand for Products
Customers who have placed specific orders
1.



Generated by sales personnel
Orders carry promised delivery dates
No forecasting of these orders
Forecasted demand
2.

Normal independent-demand sales
Demand for parts and components
3.

LO 2
Spares and repair
Bill of Materials

Bill of materials (BOM): contains the
complete product description, listing the
materials, parts, and components along with
the sequence in which the product is created


One of the three main inputs to the MRP program
Often called the product structure file or
product tree because it shows how a product
is put together
LO 2
Bill of Materials (Product
Structure Tree) for Product A
LO 2
Level Coding of Bills of
Materials
LO 2
Inventory Records File

Each inventory item carried as a
separate file


Status according to “time buckets”
Pegging

Identify each parent item that created
demand
MRP Explosion Process
The requirements for end items are
retrieved from the master schedule
1.
•
2.
3.
LO 3
These are referred to as “gross requirements”
by the MRP program
Uses on-hand balance with schedule of
orders to calculate the “net requirements”
Using net requirements, it calculates when
orders should be received to meet these
requirements
Additional MRP Scheduling Terminology

Gross Requirements

Scheduled receipts

Projected available balance

Net requirements

Planned order receipt

Planned order release
Primary MRP Reports





Planned orders to be released at a future
time
Order release notices to execute the
planned orders
Changes in due dates of open orders due
to rescheduling
Cancellations or suspensions of open
orders due to cancellation or suspension of
orders on the master production schedule
Inventory status data
Secondary MRP Reports



Planning reports, for example,
forecasting inventory requirements
over a period of time
Performance reports used to
determine agreement between actual
and programmed usage and costs
Exception reports used to point out
serious discrepancies, such as late
or overdue orders
Lot Sizing in MRP Systems
Determination of lot sizes in an MRP system is a
complicated and difficult problem
Lot sizes: the part quantities issued in the planned
order receipt and planned order release sections of
an MRP schedule
Will look at four



1.
2.
3.
4.
LO 4
Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
Lot-for-Lot




Sets planned orders to exactly match the net
requirements
Produces exactly what is needed each week
with none carried over into future periods
Minimizes carrying cost
Does not take into account setup costs or
capacity limitations.
LO 4
Economic Order Quantity



LO 4
Calculate reorder quantity based on
EOQ
EOQ was not designed for a system
with discrete time periods such as
MRP
The lot sizes generated by EOQ do
not always cover the entire number of
periods
Least Total Cost


Least total cost method (LTC): a dynamic
lot-sizing technique that calculates the order
quantity by comparing the carrying cost and
the setup costs for various lot sizes and then
selects the lot in which these are most nearly
equal
Influenced by the length of the planning
horizon
LO 4
Least Unit Cost

LO 4
Least unit cost method: a dynamic
lot-sizing technique that adds ordering
and inventory carrying cost for each
trial lot size and divides by the number
of units in each lot size, picking the lot
size with the lowest unit cost
MRP Example
Item
X
A
B
C
D
X
A(2)
C(3)
B(1)
C(2)
On-Hand Lead Time (Weeks)
50
2
75
3
25
1
10
2
20
2
D(5)
Requirements include 95 units (80 firm orders and 15 forecast) of X
in week 10
X
A(2)
It takes
2 A’s for
each X
X
LT=2
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
B(1)
It takes
1 B for
each X
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
It takes 3
C’s for
each A
B(1)
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
B(1)
C(2)
It takes 2
C’s for
each B
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
B(1)
C(2)
D(5)
It takes 5
D’s for each
B
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
Closed Loop MRP
Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning
No
Feedback
Realistic?
Yes
Execute:
Capacity Plans
Material Plans
Feedback
Any Questions?