Material Requirement Planning
(MRP)
Chapter 16
Feb 9, 2006
1
Material Requirement Planning (MRP)
 ______________________________________
 ______________________________________
Key Outputs of MRP

Calculate demand for component items

Determine requirements for subassemblies, components, and raw
material

Determine when they are needed

Generate work orders and purchase order

Consider lead time
2
When to use MRP




___________________________________
___________________________________
___________________________________
___________________________________
Dependent / Independent Demand?
3
Demand Characteristics
Demand Characteristics for Finished Products and Their Components
Dependent demand
Independent demand
100 x 1 =
100 tabletops
100 tables
Discrete demand
Continuous demand
400 –
300 –
No. of tables
No. of tables
400 –
100 x 4 = 400 table legs
200 –
100 –
1
2
3
Week
4
300 –
200 –
100 –
5
M T W Th F
M T W Th F
4
MRP Input & Output
Material
Requirements
Planning
(MRP)
Work
orders
Purchase
orders
Rescheduling
notices
5
Major Inputs to MRP Process:
1. Bill of Material


Product structure file
Determines which component items need to be scheduled
Product Structure Record
Level 0
Clipboard
Pressboa
rd (1)
Top
Clip (1)
Clip
Assembly
(1)
Bottom
Clip (1)
Rivet
s (2)
Piv
ot
(1)
Level 1
Sprin
g (1)
Level 2
6
Major Inputs to MRP Process:
2. Master Production Schedule (MPS)





Drives MRP process with a schedule of finished products
Quantities represent production not demand
Quantities may consist of a combination of customer orders &
demand forecasts
Quantities represent what needs to be produced, not what can be
produced
Example
MPS ITEM
Clipboard
Lapdesk
Lapboard
Pencil Case
1
2
85
0
75
125
95
50
120
125
PERIOD
3
120
0
47
125
4
5
100
50
20
125
100
0
17
125
7
Major Inputs to MRP Process:
3. Inventory Record



_________________________________________________
Contains an extensive amount of information on every item that
is produced, ordered, or inventoried in the system
_________________________________________________
DESCRIPTION
Item
Item no.
Item type
Product/sales class
Value class
Buyer/planner
Vendor/drawing
Phantom code
Unit price/cost
Pegging
LLC
INVENTORY POLICY
Pressboard
734
Purch
Comp
B
RSR
07142
N
1.25
Y
1
Lead time
Annual demand
Holding cost
Ordering/setup cost
Safety stock
Reorder point
EOQ
Minimum order qty
Maximum order qty
Multiple order qty
Policy code
1
5000
1
50
0
39
316
100
500
8
3
MRP Processes – 4 Basic Steps
1.
Exploding the bill of material

2.
3.
4.
___________________________________
Netting out inventory

___________________________________

___________________________________
Lot sizing rule – How many units

___________________________________

___________________________________

___________________________________
Time-phasing requirements

___________________________________
9
Lot Sizing Rule Comparison



The FOQ rule ___________
_______________________
The POQ rule ___________
_______________________
_______________________
_______________________
The L4L rule ___________
_______________________
_______________________
_______________________
10
MRP Matrix
Gross Requirement

Derived from planned order releases of the parent

Actual / estimated demand, in case of final product
Schedule Receipts

Items on order

Scheduled to arrive in the future time period
Projected on hand

Current inventory, or anticipated inventory at the end of period
Projected on-hand
Inventory at end
of period t
=
Inventory onhand at end
of period t - 1
+
Scheduled /
planned
receipts in
period t
-
Gross
requirements
in period t
11
MRP Matrix
Net requirements

Actual quantity to produce based on projected on hand
and on-order quantity
Planned Order Receipts

Quantity, when orders need to be received

Consider lot sizing rule:
Planned Order Release

When order need to be placed to receive on time

Consider lead time
12
MRP Matrix
(You can download the template from our class webpage)
ITEM NAME OR NO.
LOT SIZE
LT
1
PERIOD
2
3
4
5
Gross Requirements
Derived from MPS or planned order
releases of the parent
Scheduled Receipts
On order and scheduled to be received
Projected on Hand
Net Requirements
Beg Inv
Anticipated quantity on hand at the end
of the period
Gross requirements net of inventory and
scheduled receipts
Planned Order Receipts
When orders need to be received
Planned Order Releases
When orders need to be placed to be
received on time
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Example MRP Matrix
ITEM: CLIPBOARD LLC: 0
LOT SIZE: L4L
1
2
3
4
5
Gross Requirements
85
95
120
100
100
Scheduled Receipts
175
Projected on Hand
LT: 1
PERIOD
25
Net Requirements
Planned Order Receipts
Planned Order Releases
14
MRP Example 1
Given the following information, determine when
orders should be released for A, C, and D and the
size of those orders
C(3)
LT=4
Parts
On hand
Scheduled
Receipts
Lot Size
Demand
A
C
D
10
140
200
0
0
250, period 2
L4L
Mult 50
Mult 250
100, period 8
A
LT=3
D(2)
LT=2
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MRP Example 2
Given the following information,
determine when orders should be
released for A, B, C, and D and
the size of those orders.
A
LT=3
C(3)
LT=4
B
LT=2
D(2)
LT=2
Parts
On hand
Scheduled
Receipts
Lot Size
Demand
A
B
C
D
10
5
140
200
0
0
0
250, period 2
L4L
L4L
Mult 50
Mult 250
100, period 8
200, period 6
-
D(3)
LT=2
16
Evolution of MRP
 MRP (material requirements planning) was the



precursor to ERP
Primarily a production planning and control system
MRP evolved to MRP II (manufacturing resource
planning)
ERP (Enterprise Resource Planning) and ERP II
continue to extend the links through all business
processes
17
Enterprise Resource Planning (ERP)
An Overview

Organizes and manages a company’s business processes
by sharing information across functional areas

Connects with supply-chain and customer management
applications

ERP in the nutshell*


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

Client server software
Integrates majority of business processes
Processes majority of transactions
Enterprise wide database
Real time data access
* adapted from e-courseware, MIT Sloan
18
ERP Modules
[Figure 12.1 Organizational Data Flow]
19
ERP Modules
[Figure 12.2 ERP’s Central Database]
Finance &
Accounting
Sales
&
Marketing
ERP Data
Repository
Production &
Materials
Management
Human
Resources
20
ERP Implementation Process

First step is to analyze business processes




Which processes have the biggest impact on customer
relations?
Which process would benefit the most from integration?
Which processes should be standardized?
Use of Internet portals can aid implementation
21