Slides prepared
by John Loucks
ã 2002 South-Western/Thomson Learning TM
11
Chapter 15
Resource Requirements Planning:
MRP and CRP
2
Overview




Resource Requirements Planning
Material Requirements Planning (MRP)
Capacity Requirements Planning (CRP)
Wrap-Up: What World-Class Companies Do
3
Resource Requirements Planning
Aggregate
Planning
Chapter 13
Master Production
Scheduling (MPS)
Resource
Requirements
Planning
Material Requirements
Planning (MRP)
Chapter 15
Capacity Requirements
Planning (CRP)
4
Material Requirements Planning (MRP)
5
Materials Requirements Planning (MRP)



Computer based system
Explodes Master Schedule (MPS) into required
amounts of raw materials and subassemblies to
support MPS
Nets against current orders and inventories to develop
production and purchased material ordering schedules
6
Objectives of MRP



Improve customer service
Reduce inventory investment
Improve plant operating efficiency
7
Elements of MRP
Inputs
Service-Parts
Orders and
Forecasts
Outputs
Inventory
Transaction Data
Inventory
Status File
Order Changes
Order
Planned
Order
Schedule
Master
Production
Schedule
Bill of
Materials File
MRP
System
Planning
Report
Performance
Exception
Reports
8
MRP Computer Program






Begins with number of end items needed
Add service parts not included in MPS
Explode MPS into gross requirements by consulting
bill of materials file
Modify gross requirements to get net requirements:
Net Requirements = Gross Requirements
+ Allocated Inventory
+ Safety Stock
- Inventory On Hand
Offset orders to allow for lead time
9
Outputs of MRP



Planned order schedule - quantity of material to be
ordered in each time period
Changes to planned orders - modifications to
previous planned orders
Secondary outputs:
Exception reports
Performance reports
Planning reports



10
Example: MRP Schedule
LocoMopeds is a manufacturer of off-road
mopeds. The following product structure diagram
represents the bill of materials for its dual-carburetor
Model 442 moped.
MOPED
Level 0
Level 1
Level 2
ENGINE
ASSEMBLY
MOTOR
GAS
TANK
CARBURETOR
(2)
WHEEL
ASSEMBLY
(2)
HUB
ASSEMBLY
FRAME
TIRE
11
Example: MRP Schedule

Bill of Material
Parent
Code
Component
Code
Level
Code
Compon.
Req’d
Description
442
0
#442 Moped
442
EA
GT
WA
F
1
1
1
1
Engine Assem.
Gas Tank
Wheel Assem.
Frame
1
1
2
1
EA
M
C
2
2
Motor
Carburetor
1
2
WA
HA
T
2
2
Hub Assem.
Tire
1
1
12
Example: MRP Schedule

Inventory Status Report
Item
Code
OnHand
Safety
Stock
Lot
Size
Lead
Time
Sched. Receipts
Qnty. Week
442
500
200
LFL
1
--
--
EA
300
100
500
1
1000
10
GT
600
200
LFL
2
900
10
WA
500
400
500
1
2000
10
F
600
0
2000
3
2000
10
M
250
0
LFL
1
--
--
C
150
100
2000+
2
--
--
HA
100
0
LFL
1
2400
11
T
500
500
1000
3
3000,2000
11,12
13
Example: MRP Schedule
The company is currently planning production for
weeks 10 through 16. Based on existing orders and
demand forecasts, the master production schedule is
as follows:
Master Production Schedule: #442 Moped
WEEK
10
11
12
13
14
15
16
QUANTITY
0
1000
0
1300
800
1200
1400
Determine the MRP schedule required to support
the master production schedule for the Model 442
moped in weeks 10-16.
14
Example: MRP Schedule

MRP Schedule for #442 Mopeds for Weeks 10 - 16,
considering that:
Gross Requirements come from the moped MPS
There is an On-Hand balance of 500 mopeds at the
end of week 9
There are no Scheduled Receipts for mopeds
A lot-for-lot rule is used for ordering mopeds
Safety stock of 200 mopeds is desired
Lead time for mopeds is one week

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15
Example: MRP Schedule

MRP Schedule for #442 Mopeds . . . Initially
ITEM: 442 MOPED
LOT SIZE: LFL
LT: 1
SS: 200
GROSS REQUIREMENTS
WEEK
10
11
12
0
1000
0
13
14
15
16
1300 800 1200 1400
SCHEDULED RECEIPTS
AVAILABLE
(ON-HAND = 500)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
16
Example: MRP Schedule

MRP Schedule for #442 Mopeds . . . Completed
ITEM: 442 MOPED
LOT SIZE: LFL
LT: 1
SS: 200
WEEK
10
11
12
0
1300
0
(ON-HAND = 500) 300 300
0
GROSS REQUIREMENTS
13
14
15
16
1300 800 1200 1400
SCHEDULED RECEIPTS
AVAILABLE
0
0
0
0
NET REQUIREMENTS
1000
1300 800 1200 1400
PLANNED ORDER RECEIPTS
1000
1300 800 1200 1400
PLANNED ORDER RELEASES
1000
1300 800 1200 1400
17
Example: MRP Schedule

MRP Schedule for Gas Tanks for Weeks 10 - 16,
considering that:
Gross Requirements come from moped PlannedOrder-Releases
There is an On-Hand balance of 600 gas tanks at
the end of week 9
There is a Scheduled Receipt for 900 tanks in
week 10
A lot-for-lot rule is used for ordering gas tanks
Safety stock of 200 gas tanks is desired
Lead time for gas tanks is two weeks

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


18
Example: MRP Schedule

MRP Schedule for Gas Tanks . . . Initially
ITEM: GAS TANK
LOT SIZE: LFL
LT: 2
SS: 200
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
900
AVAILABLE
12
13
14
15
1300 800 1200 1400
16
0
(ON-HAND = 600)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
19
Example: MRP Schedule

MRP Schedule for Gas Tanks . . . Completed
ITEM: GAS TANK
LOT SIZE: LFL
LT: 2
SS: 200
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
900
AVAILABLE
12
13
14
15
1300 800 1200 1400
(ON-HAND = 600) 1300 300 300
0
0
0
NET REQUIREMENTS
1000 800 1200 1400
PLANNED ORDER RECEIPTS
1000 800 1200 1400
PLANNED ORDER RELEASES
16
0
0
1000 800 1200 1400
20
Example: MRP Schedule

MRP Schedule for Frames for Weeks 10 - 16,
considering that:
Gross Requirements come from moped PlannedOrder-Releases
There is an On-Hand balance of 600 frames at the
end of week 9
There is a Scheduled Receipt for 2000 frames in
week 10
The firm uses a Lot Size (multiple) of 2000 for
ordering frames
No safety stock of frames is desired
Lead time for frames is 3 weeks

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
21
Example: MRP Schedule

MRP Schedule for Frames . . . Initially
ITEM: FRAME
LOT SIZE: 2000
LT: 3
SS: 0
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
2000
AVAILABLE
12
13
14
15
1300 800 1200 1400
16
0
600
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
22
Example: MRP Schedule

MRP Schedule for Frames . . . Completed
ITEM: FRAME
LOT SIZE: 2000
LT: 3
SS: 0
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
2000
AVAILABLE
12
13
14
15
1300 800 1200 1400
16
0
(ON-HAND = 600) 2600 1600 1600 300 1500 300 900
NET REQUIREMENTS
0
0
0
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
500
2000
2000
0
1100
0
2000
2000
23
Example: MRP Schedule

MRP Schedule for Engine Assemblies for Weeks 10 16, considering that:
Gross Requirements come from moped PlannedOrder-Releases
There is an On-Hand balance of 300 engine
assemblies at the end of week 9
There is a Scheduled Receipt for 1000 engine
assemblies in week 10
The firm uses a Lot Size (multiple) of 500 for
ordering engine assemblies
Safety Stock of 100 engine assemblies is desired
Lead time for engine assemblies is 1 week






24
Example: MRP Schedule

MRP Schedule for Engine Assemblies . . . Initially
ITEM: ENGINE ASSEM.
LT: 1
LOT SIZE: 500
SS: 100
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
1000
AVAILABLE
12
13
14
15
1300 800 1200 1400
16
0
(ON-HAND = 300)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
25
Example: MRP Schedule

MRP Schedule for Engine Assemblies . . . Completed
ITEM: ENGINE ASSEM.
LT: 1
LOT SIZE: 500
SS: 100
WEEK
10
11
GROSS REQUIREMENTS
1000
0
SCHEDULED RECEIPTS
1000
AVAILABLE
1200 200
(ON-HAND = 300)
12
13
14
15
1300 800 1200 1400
0
200 400 100 400
0
NET REQUIREMENTS
1100 400 1100 1000
PLANNED ORDER RECEIPTS
1500 500 1500 1000
PLANNED ORDER RELEASES
16
1500 500 1500 1000
26
Example: MRP Schedule

MRP Schedule for Motors for Weeks 10 - 16,
considering that:
Gross Requirements come from engine assembly
Planned-Order-Releases
There is an On-Hand balance of 250 motors at the
end of week 9
There are no Scheduled Receipts for motors
A lot-for-lot rule is used for ordering motors
No Safety Stock of motors is desired
Lead time for motors is 1 week






27
Example: MRP Schedule

MRP Schedule for Motors . . . Initially
ITEM: MOTOR
LOT SIZE: LFL
LT: 1
SS: 0
GROSS REQUIREMENTS
WEEK
10
11
12
13
14
15
16
1500 500 1500 1000
SCHEDULED RECEIPTS
AVAILABLE
(ON-HAND = 250)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
28
Example: MRP Schedule

MRP Schedule for Motors . . . Completed
ITEM: MOTOR
LOT SIZE: LFL
LT: 1
SS: 0
GROSS REQUIREMENTS
WEEK
10
11
12
13
14
15
16
0
0
1500 500 1500 1000
SCHEDULED RECEIPTS
AVAILABLE
(ON-HAND = 250)
250 250
0
0
0
NET REQUIREMENTS
1250 500 1500 1000
PLANNED ORDER RECEIPTS
1250 500 1500 1000
PLANNED ORDER RELEASES
1250 500 1500 1000
29
Example: MRP Schedule

MRP Schedule for Carburetors for Weeks 10 - 16,
considering that:
Gross Requirements come from engine assembly
Planned-Order-Releases (times 2)
There is an On-Hand balance of 150 carburetors at
the end of week 9
There are no Scheduled Receipts for carburetors
A Lot Size of 200+ is used for ordering carburetors
Safety Stock of 100 carburetors is desired
Lead time for carburetors is 2 weeks






30
Example: MRP Schedule

MRP Schedule for Carburetors . . . Initially
ITEM: CARBURETOR
LOT SIZE: 2000+
LT: 2
SS: 100
GROSS REQUIREMENTS
WEEK
10
11
12
13
14
15
16
3000 1000 3000 2000
SCHEDULED RECEIPTS
AVAILABLE
(ON-HAND = 150)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
31
Example: MRP Schedule

MRP Schedule for Carburetors . . . Completed
ITEM: CARBURETOR
LOT SIZE: 2500+
LT: 2
SS: 100
WEEK
10
11
12
13
14
GROSS REQUIREMENTS
3000 1000 3000 2000
SCHEDULED RECEIPTS
3000
AVAILABLE
(ON-HAND = 150)
16
50 3050 50 1550 1050 1550 1550
NET REQUIREMENTS
950 1450 950
PLANNED ORDER RECEIPTS
2500 2500 2500
PLANNED ORDER RELEASES
15
2500 2500 2500
32
Example: MRP Schedule

MRP Schedule for Wheel Assemblies for Weeks 10 16, considering that:
Gross Requirements come from moped PlannedOrder-Releases (times 2)
There is an On-Hand balance of 500 wheel
assemblies at the end of week 9
There is a Scheduled Receipt for 2000 wheel
assemblies in week 10
A Lot Size (multiple) of 500 is used for ordering
wheel assemblies
Safety Stock of 400 wheel assemblies is desired
Lead time for wheel assemblies is 1 week






33
Example: MRP Schedule

MRP Schedule for Wheel Assemblies . . . Initially
ITEM: WHEEL ASSEM.
LT: 1
LOT SIZE: 500
SS: 400
WEEK
10
11
GROSS REQUIREMENTS
2000
0
SCHEDULED RECEIPTS
2000
AVAILABLE
12
13
14
15
2600 1600 2400 2800
16
0
(ON-HAND = 500)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
34
Example: MRP Schedule

MRP Schedule for Wheel Assemblies . . . Completed
ITEM: WHEEL ASSEM.
LT: 1
LOT SIZE: 500
SS: 400
WEEK
10
11
GROSS REQUIREMENTS
2000
0
SCHEDULED RECEIPTS
2000
AVAILABLE
2100 100 100
(ON-HAND = 500)
12
13
14
15
2600 1600 2400 2800
0
400
0
NET REQUIREMENTS
2500 1600 2000 2800
PLANNED ORDER RECEIPTS
2500 2000 2000 3000
PLANNED ORDER RELEASES
16
0
200
2500 2000 2000 3000
35
Example: MRP Schedule

MRP Schedule for Hub Assemblies for Weeks 10 - 16,
considering that:
Gross Requirements come from wheel assembly
Planned-Order-Releases
There is an On-Hand balance of 100 hub assemblies
at the end of week 9
There is a Scheduled Receipt of 2400 hub
assemblies in week 11
A lot-for-lot rule is used for ordering hub assemblies
No Safety Stock of hub assemblies is desired
Lead time for hub assemblies is 1 week






36
Example: MRP Schedule

MRP Schedule for Hub Assemblies . . . Initially
ITEM: HUB ASSEM.
LOT SIZE: LFL
LT: 1
SS: 0
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
AVAILABLE
WEEK
10
0
11
12
13
14
2500 2000 2000 3000
15
16
0
0
2400
(ON-HAND = 100)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
37
Example: MRP Schedule

MRP Schedule for Hub Assemblies . . . Completed
ITEM: HUB ASSEM.
LOT SIZE: LFL
LT: 1
SS: 0
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
AVAILABLE
(ON-HAND = 100)
WEEK
10
0
11
12
13
14
2500 2000 2000 3000
16
0
0
0
0
2400
100 2500
0
0
0
NET REQUIREMENTS
2000 2000 3000
PLANNED ORDER RECEIPTS
2000 2000 3000
PLANNED ORDER RELEASES
15
2000 2000 3000
38
Example: MRP Schedule

MRP Schedule for Tires for Weeks 10 - 16,
considering that:
Gross Requirements come from wheel assembly
Planned-Order-Releases
There is an On-Hand balance of 500 tires at the
end of week 9
There are Scheduled Receipts for 3000 and 2000
tires weeks 11 and 12, respectively
A Lot Size (multiple) of 1000 is used for ordering
tires
Safety Stock of 500 tires is desired
Lead time for tires is 3 weeks






39
Example: MRP Schedule

MRP Schedule for Tires . . . Initially
ITEM: TIRE
LOT SIZE: 1000
LT: 3
SS: 500
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
AVAILABLE
WEEK
10
0
11
12
13
14
2500 2000 2000 3000
15
16
0
0
3000 2000
(ON-HAND = 500)
NET REQUIREMENTS
PLANNED ORDER RECEIPTS
PLANNED ORDER RELEASES
40
Example: MRP Schedule

MRP Schedule for Tires . . . Completed
ITEM: TIRE
LOT SIZE: 1000
LT: 3
SS: 500
GROSS REQUIREMENTS
WEEK
10
0
(ON-HAND = 500)
12
13
14
2500 2000 2000 3000
0
3000 2500 500
16
0
0
500 500 500
NET REQUIREMENTS
1500 2500
PLANNED ORDER RECEIPTS
2000 3000
PLANNED ORDER RELEASES
15
3000 2000
SCHEDULED RECEIPTS
AVAILABLE
11
2000 3000
41
Lot-Sizing in MRP


Lot-size is the quantity ordered/produced at one time
Large lots are preferred because:
Changeovers cost less and capacity greater
Annual cost of purchase orders less
Price breaks and transportation breaks can be
utilized
Small lots are preferred because:
Lower inventory carrying cost
Reduced risk of obsolescence
Shorter cycle time to produce customer order


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42
Lot-Sizing Methods

Economic Order Quantity (EOQ)
does not consider quantity discounts
does not always provide the most economical
approach with lumpy demand
Lot-for-Lot (LFL)
accommodates lumpy demand
Period Order Quantity (POQ)





The best method, resulting in least cost,
depends on cost and demand patterns.
43
Example: Lot-Sizing Decision
The net requirements for a material from an MRP
WEEK
schedule are:
NET REQUIREMENTS
1
2
1000
0
3
4
5
6
1300 800 1200 1300
7
8
0
800
It costs $400 to change over the machines for this
material in the affected work center. It costs $0.40
per unit when one unit of this material must be
carried in inventory from one week to the next.
Identify the lot-sizing method that results in the
least carrying and changeover costs for the 8-week
schedule.
44
Example: Lot-Sizing Decision

Lot-for-Lot Method
WEEK
1
2
1000
0
0
0
PRODUCTION LOTS
1000
0
ENDING INVENTORY
0
0
NET REQUIREMENTS
BEGINNING INVENTORY
3
4
5
6
1300 800 1200 1300
0
0
0
0
1300 800 1200 1300
0
0
0
0
7
8
0
800
0
0
0
800
0
0
Carrying Cost
= 0($.40) = $0
Changeover Cost = 6($400) = $2,400
Total = $2,400
45
Example: Lot-Sizing Decision

Economic Order Quantity (EOQ) Method
S = $400.00
D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year)
= (6400/8)(50) = 40,000
C = ($0.40 per week)(50 weeks/year)
= $20.00
EOQ =
2DS
=
C
2(40,000)(400)
= 1265
20
46
Example: Lot-Sizing Decision

Economic Order Quantity (EOQ) Method
WEEK
NET REQUIREMENTS
BEGINNING INVENTORY
1
2
1000
0
0
3
4
5
6
1300 800 1200 1300
7
8
0
800
265 265 230 695 760 725 725
PRODUCTION LOTS
1265
0
1265 1265 1265 1265
0
1265
ENDING INVENTORY
265 265 230 695 760 725 725 1190
Carrying Cost = 4855($.40) = $1,942
Changeover Cost = 6($400) = $2,400
Total = $4,342
47
Example: Lot-Sizing Decision

Period Order Quantity (POQ) Method
POQ = (# Weeks/year)/(# Orders/year)
= 50/(D/EOQ)
= 50/(40,000/1,265)
= 1.58 or 2 weeks
48
Example: Lot-Sizing Decision

Period Order Quantity (POQ) Method
WEEK
1
2
1000
0
0
0
0
800
0
PRODUCTION LOTS
1000
0
2100
0
ENDING INVENTORY
0
0
800
0
NET REQUIREMENTS
BEGINNING INVENTORY
3
4
5
6
7
8
0
800
1300
0
800
2500
0
800
0
1300
0
800
0
1300 800 1200 1300
Carrying Cost = 2900($.40) = $1,160
Changeover Cost = 4($400) = $1,600
Total = $2,760
49
Example: Lot-Sizing Decision

Summary
Method
LFL
EOQ
POQ
Carrying
Cost
0
1,942
1,160
Chg.Ovr.
Cost
2,400
2,400
1,600
Total
Cost
2,400
4,342
2,760
50
Issues in MRP

Lot-Sizing
Useful at lower levels but may drive excess
inventory when applied at higher levels
Net Change versus Regenerative MRP
Net change may generate too many action notices
Regenerative more costly to run but appears to be
easier to manage
. . . more





51
Issues in MRP

Safety Stock
Use depends on uncertainty of demand..... more
uncertain the greater the need for safety stock
Assemble-to-Order Firms
MPS and MRP treated separately from Final
Assembly Schedule(FAS)
Use Modular Bill of Material




52
MRP I to MRP II


MRP I simply exploded demand (MPS) into required
materials
MRP II became Manufacturing Resource Planning
which provides a closed-loop business management
system
Financial management
Shop floor control
Operations management
Simulation capability




53
Evaluation of MRP




Most beneficial to process-focused systems that have
long processing times and complex multistage
production steps
Lead times must be reliable
Must freeze MPS for some time before actual
production... certain demand
Difficult to implement
54
Capacity Requirements Planning (CRP)
55
Capacity Requirements Planning (CRP)




Tests MPS for feasibility
Utilizes routings to determine labor/machine loads
If schedule feasible, recommends freezing
If schedule overloads resources, points out processes
that are overscheduled
56
Load Schedules




Compares actual labor and machine hours against
available hours
Offsets schedules between successive stages of
production by lead times
Provides feasible MPS and economically loaded work
centers
Promotes system operating efficiency ... lowers costs!
57
Wrap-Up: World-Class Practice





Lead times respond to conditions
Product development as levels of product structure
tree
Lead times that adjust to load
MRP reports shared with customers and suppliers
All of the above results in bias towards smaller
batches and shorter lead times
58
End of Chapter 15
59