18

MATERIAL REQUIREMENT PLANNING

(MRP)
. Introduction.MRPObjectives.Functionsservedby MRP

.
. Masterproductionschedule(MPS) . Inventory status file .. MRP terminology.
Bill of material (BOM)
MRP system
. MRP logic

.
MRP outputs. Management information from MRP ~_Lot Sizing considerations.
resource planning-MRP II Capacity requirements planning (CRP).
Manufacturing

18.1. INTRODUCTION
Material requirement planning (MRP) refers to the basic calculations used to determine
component requirements from end item requirements. It also refers to a broader information
system that uses the dependence relationship to plan and control manufacturing operations.
MRP is a technique of working backward from the scheduled quantities and needs dates for end
items specified in a master production schedule to determine the requirements for c9mponents
needed to meet the master production schedule. The technique determines what components are
needed, how many are needed, when they are needed and when they should be ordered so that they
are likely to be available as needed. The MRP logic serves as the key component in an information
system for planning and controlling- production operations and purchasing. The information
provided by MRP is highly useful in scheduling because it indicates th~ relative priorities of shop
orders and purchase orders.
"Materials Requirement Planning (MRP) is a technique for determining the quantity and
timing for the acquisition of dependent demand items needed to satisfy master production
schedule requirements."
MRP is one of the powerful tools that, when applied properly, helps the managers in achieving
effective manufacturing control.

18.2. MRP OBJECTIVES

I. Inv.entory reduction: MRP determines how many components are required, when they are
required in order to meet the master schedule. It helps to procure the materials/components as and
when needed and thus avoid excessive build up of inventory.
2. Reduction in the manufacturing and delivery lead times: MRP identifies materials and
component quantities, timings when they are needed, availabilities and procurements and actions
required to meet delivery deadlines. MRP helps to avoid delays in production and priorties
production activities by putting due dates on customer job orders. '
3. Realistic delivery commitments: By using MRP, production can give marketing timely
information about likely delivery times to prospective customers.
4. Increased efficiency: MRP provides a close coordination among various work centres and

237
238 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

hence helps to achieve uninterrupted flow of materials through the production line. This increases
the efficiency of production system. ,

18.3. FUNCTIONS SERVED BY MRP

1. Order planning and control: When to release orders and for what quantities of
materials/components.
2. Priority planning and control: How the expected date of availability is compared to the
need date for each component.
3. Provision of a basis for planning capacity requirements and developing a broad business
plans.
The following questions are addressed in MRP processing:
1. What do we want to produce, and when. Provided by Master Production Schedule
2. What component are required to make it and Bill of Materials (BOM)
how many.
3. How many are already scheduled to be Inventory status file
available in each future period.
4. How many more we need to obtain for each Difference in required and available
future period.
5. When to order these amounts so they will Planned order release
be available when needed.

18.4. MRP TERMINOLOGY

I. Dependent demand: The demand for an item depends on another item. The demand
dependency is the degree to which the demand for one item is associated with demand for another
item.
2. MRP: A technique for determining the quantity and timing of dependent demand items.
3. Lot size: The quantity of items required for an order.
4. Time phasing: Scheduling to produce or receive an appropriate amount (Lot) of material
so that it will be available in the time periods when required.
5. Time bucket: The time period used for planning purposes in MRP.
6. Gross requirements: The overall quantity of an item needed at the end of the period to
meet the planned output levels.
7. Net requirements: The net quantity of an item that must be acquired to meet the scheduled
output for the period. It"is calculated as, Gross requirements minus scheduled receipts for the
period minus amounts available from the previous period.
8. Requirements explosion: The bre\king down of (exploding) parent items into component
parts that can be individually planned and scheduled.
9. Scheduled receipts: The quantity of an item that will be rece\ved from suppliers as a result
of orders that have been placed.
10. Planned order receipts: The quantity of an item that is planned to be ordered so that it
will be received at the beginning of the period to meet net requirements for the period. The order
has not yet been placed.
11. Planned order release: The quantity of an item that is planned to be ordered or it is a plan
(quantity and date) to initiate the purchase or manufacture of materials so that they will be
received on schedule after the lead time offset.
12. Lead time offset: The supply time or number of time buckets between releasing an order
and receiving the ma~erials.
 MATERIAL REQUIREMENT PLANNING (MRP) 239

18.5. MRP SYSTEM

Fig. 18.1 'shows the MRP system components.

MASTER PRODUCTION
~CHEDULE (MPS)

. Materials Requirement Bill of Material

Inventory
Status File Planning (MRP)
Processing logic (HOM)

Order Release
Requirements Planned Orders
Orders Rescheduling
(Orders to be (Future)
I j placed now)

Fig. 18.1: MRPsystem.

The inputs to the MRP systems are: (1) A master production schedule, (2) An inventory Status
I' file, and (3) Bill of material (BOM).
Using these three information sources, the MRP processing logic (Computer Programme)
provides three kinds of information (Output) for each product component: Order release
requirements order rescheduling and planned orders.
Master Production Schedule (MPS)
MPS is a series of time phased quantities for each item that a company produces, indicating
how many are to be produced and when. MPS is initially developed from firm customer orders or
from forecasts of demand before MRP system begins to operate. rhe MRP system accepts
whatever the 'master schedule demands and translates MPS end items into specific component
requirements. Most systems then make a simulated trial run to determine whether the proposed
I~ master schedule can be satisfied. .

Inventory Status File

Every inventory item beingplanned must have an inventorystatus file which gives complete
and up to date information on the on hand quantities, gross requirements, scheduled receipts and
planned order releases for the item. It also includes wanning information such as lot sizes, lead
times, safety stock levels and scrap allowances.
Basically, the job'of the inventory status file is to keep data, about the projected use and receipts
of eachitem and to determinethe amountof inventory that will be availablein each time bucket.
If the projectedavailableinventoryis not adequateto meet the requirementin a period, the MRP
programme w.ll recommend that its item be ordered.
8i11of Materials (80M)
To schedulethe productionof an end product,the MRP systemmust plan for all the materials,
parts and subassemblies that go into the end product. The Bill of MateriaJ file in the computer
provide this information.BOM file identifies each componentby unique part numberand helps
processing by a processwhich 'explodes' end itemrequirementsinto componentrequirements.
Thus BOM identifies how each end product is manufactured,specifying all subcomponents
items, their sequence of build up, their quantity in each finished unit and the work centres
 240 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

performing the build up sequence. This information is obtained from product design documents,
work flow analysis and other standard manufacturing information. .
The BOM processor is a software package that maintains and updates the BOM listing of all
components that go into the product. It also links the BOM file with the inventory status file so
that the requirements explosion correctly accounts for the current inventory levels of all
components.
Product structure: The primary information to MRP from Bill of material is the product
.II structure, the level of components to produce an end product. End product is on level '0'; the
components required for level '0' are on level 'I' and so on. A product structure is shown in Fig.
18.2.

Level '0' (End Product) A D

Components B C E
Level (1)

Components
Level (2)
Fig. 18.2: Product structure for two assembled products.

One unit of end product A requires one unit each of components Band C. One unit of end
product D requires one unit of component E and one unit of component F. The component F in
turn requires one unit of component B and two units of component C.
To facilitate MRP processing, each component at every level of the BOM must have a unique
part number for its identification. The separate identifications enable computer to find any parent
n item and. to determine all the components needed to make it. Determining all the lower level
If components needed to make a parent is called exploding the requirement by the BOM.
Example of Product Structure
The product structure tree fora three drawer file cabinet without fasteners is represented in Fig.
18.3.
Level '0' 3 drawer file
cabinet
Part No. 001 1(1week)

Level '1'

Level '2'

Level '3'

Fig. 18.3: Product Structure file for 3 drawer file cabinet.

.

,
II
MATERIAL REQUIREMENT PLANNING (MRP) 241

-Number Description
001 File cabinet
1001 (1) Case assembly
1002 (1) Lock
1003 (3) Drawer assembly
1001 Case assembly
2001 (6) Drawer slides
2002 (1) Formed case
1003 Drawer assembly
2003 (1) Formed drawer
2004 (1) Handle
2005 (2) Support rollers
2002 Formed case
3001 (1) Sheet steel
2003 Formed drawer
3002 (1) Sheet Steel

18.6. MRP.OUTPUTS
The most visible outputs are the actual and planned order releases that go to purchasing and in
house production shops. .
A variety of reports can be generated from the information made available by an MRP Program.

TO MPS Planners'
. Simulation of proposed MPS
. Researching information for open orders
(due to cancellation, delays, shortages)
To Purchasing and Production
. Changes to keep priorities valid.
.. Order releases (Purchase and shop orders)
Planned order releases

.
To capacity Requirements Planning
Order release information for load profiles, delays, shortages

..
To Management
Performance measurement of (vendors, cost, forecast accuracy)
Exception reports (on due dates BOM file, etc.)

18.7. MRP LOGIC.

MRP processing logic accepts the master schedule and determine the components schedules
successfully for low-level items of the product structures. It calculates for each item in each
product structure and for each time period (typically one week) in the planning horizon how many
of that items are required (Grass requirements) how many units from inventory are already
available, the net quantity that must be planned (planned order receipts) and when orders for new
shipments must be planned (planned order releases) so that all material arrive when needed.
Net requirements are calculated by adjusting for existing inventory items already, on order as
recorded in inventory statuS file.
. Projected gross - Inventory + SChe~Uled
Net reqUIrements = .
reqUIremen t s [ . on hand receIpts. ]
 242 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

Order releases are planned for components in a time phased manner (using lead time data from
the inventory file) so that materials will arrive precisely when needed. This is referred to as
planned order receipt. When the.orders are actually issued to vendors or shops the planned receipt
,, becomes the scheduled receipt.
'..
,I I
, 18.8. MANAGEMENT INFORMATION FROM MRP
:' lARPoutput includes a report as s~own in Fig. 18.4 for one component. The detailed identification
. ",
I (code), lead time is given in the report.
I.

"
..
The report shows that:
400 units are needed in week 4 and another 500 nelded in week 8. (Gross requirements)
No outstanding orders were previously placed, and no scheduled receipt of this items.
. There ar~ 50 units of the item already available as inventory and this will. meet the 4
weeks requirements.
. Thus, net requirements are 350 units for week 4 (400-50) and 500 for week 8.
To meet these net requirements, we should plan to receive 350 units in four weeks and 500 units
in eight weeks. Since the lead time for an item is three weeks, the first order must be placed in first
week and second in fifth week.
This report clearly identifies the procurement actions required to keep production on schedule.
Any change in end item demand with time, modifications in the MPS will dictate correspondi.ng
adjustment of lower level requirements.
WEEK
J 2 3 4 5 6 7 8
Gross requirements 400 500
Scheduled receipts
Availablefor next period I 50 50 50 50
Net requirements 350 500
Planned Order receipts
Planned Order releases I
350-
- -- 350
500- ,
--- -500

Fig. 18.4: An MAP report for one item.

18.9. LOT SIZING CONSIDERATIONS

The released orders should specify a discrete lot size for purchasing or manufacturing. The various

...
lot sizing techniques available are given below: .

FIXED ORDER QUANTITY-Each time an order is placed, the quantity remains same.
ECONOMIC ORDER QUANTITY (EOQ).
LOT FOR LOT (LFL)-Order the exact net requirements each period.
. LEAST UNIT COST (LUC)
. LEAST TOTAL COST (LTC)-Order the quantity that minimises the total set-up and
. carrying ~osts during the planning horizon.
PART PERIOD ALGORITHM (PPA)-Use the ratio of ordering and carrying costs to

. derive a part period I)umber and use the number as a creation for cumulating requirements.
FIXED PERIOD REQUIREMENTS-Order a supply for a given number of periods each
time (e.g., a two months supply).
 .
MATERIAL REQUIREMENT PLANNING (MRP) 243

Problem 1: Complete the material requirements plan for an item X shown below. The item has
an independent demand and a safety stock of 40 is maintained.
WEEK
Order Quantity = 70
Lead time = 4 weeks I 2 3 4 S 6 7 I 8 9 10 II 12
Safety stock = 40 -
Projected 20 20 25 20 20 25 20 20 30 25 25 25
requirement
Receipts 70

On hand at the
end of period (65) I-
Planned order
release J
Solution.
WEEK
Order Quantity = 70
Lead time = 4 weeks I 2 3 4 5 6 7 8 9 10 II 12
Safety stock = 40
ProjeLted 20 20 25 20 20 25 20 20 30 25 25 25
requirement
Receipts 70 70 70

On hand at the
end of period (65) 45 95 70 50 100 75 55 105 75 50 95 70
.Jff 25'
Planned order 70
70 70
release

Problem 2: A small-scale unit manufactures a product and it is expected to supply 80 units in

week I, 120 in week 4, 120 in week 6, and 100 in week 8. Each product is made of 2 housings, a
shaft assembly and one wheel. For shaft assembly order quantities, lead times and inventories on
- hand at the beginning of period 1 are given below.
Part Order Qty. Lead time Inventory on hand
Housings 600 2 weeks 200
Shaft assembly 400 3 weeks 440
Wheel 800 I week 100

Apart from the above requirement, another 180 shafts assembly required for another customer
600 units of housing are already scheduled to be received at the beginning of week 2. Complete
the material requirement plan for housing, shaft and wheel and show what quantities of orders
must be released and when they must be released in order to satisfy the MPS.
Solution: End item master schedule is shown in table 18.1.
Table 18.1: End item Master Schedule
Week Nos. I 2 3 4 5 6 7 8
Requirement" 80 120 50

...
 244 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

Table 18.2: Components and Subcomponents Materials Plan

Component Material Plan-Housing

,.. Order Quantity = 600

WEEK
'. Lead time = 2 weeks l' 2 3 4 5 6 7 8
.
:1
:;,
Projected 160 240 240 200
requirement
I,
0 Receipts 600
r- I- 600
On hand at the / 560
40 640 640 400 400 160
end of period (200) 160/ 40
Planned order
release - ' o
(Place order in week 6 as in week, 8, there is negative stock)
Component Material Plan-Shaft
WEEK
Order Quantity = 400
Lead time = 3 weeks 1 2 3 4 5 6 7 8
Projected 80 120 180* 120 100
requirement
Receipts
/'
On hand at the 340
360 360 360 O 340 240
end of period (440) .::::-- j..- 60

Plannedorder
release
t:
.-<1'
@ c.----
Sub-component M'terial Plan-Wheel
WEEK
Order Quantity = 800
Lead time = 3 weeks 1 2 3), . 4 5 .6 7 8
Projected 400
requ'irement
',Receipts
@ 400
On hand at the' 500
100 100 500 500 500 500 500
end of period (100) 300
Plannedorder
release
* Requirementfrom another product.
S
The MRP master schedule and component part schedule is shown in the tables.
Each unit of product requires two housing, one shaft assembly and one wheel. Each unit of
product requires two housing, the projected material requirements for housing are double the
number of end products. The projected requirements of 160 housings in period 1 are adequately
satisficd by the 200 units on hand at the beginning of period 1, leaving 40 on hand .at the end of
period I. On hand materials can be calculated with the following equation:
On handat On handat end + R . t Projected
endof period = of previousperiod ecelp s - requirements
With the receipt of 600 housings in period 2, the on hand inventory will be adequate until week
MATERIAL REQUIREMENT PLANNING (MRP) 245

8, which at first instant will be 40 units short. To overcome this a"planned order release for 600
quantity has been scheduled for week 6 because housing has 2 weeks lead-time. The planned
receipt of 600 in week 8 will thus result in an end of period inventory of 560 units.
Each unit of product requires one shaft assembly and 180 shaft assembly are needed for another
product in week 5 are incorporated into the requirements. The on hand stock is adequate until
week 6, when quantities will drop to - 60 unless a planned ordet is released in week 3.
The wheel is a sub-component of shaft assembly. Planned o~er of 400 units from the above
shaft assembly plan shows up as a projected requirement for 400 wheels in week 3 on the
sub-component plan. Since on hand inventory is inadequate to supply this need, a planned order
release is scheduled for week 2. It should ensure that an order of 400 wheels will be available by
the beginning of week 3.

18.10. MANUFACTURING RESOURCE PLANNING (MRP-II)

Manufacturing Resource Planning (MRP-II) is an integrated information system that synchronise
all aspects of the business. MRP-II system coordinates sales, purchasing, manufacturing, finance
and engineering by adopting a focal production plan and by using one unified data base to plan
and update the activities in all the systems.
A manufacturing resource planning can be divided into three parts which are composed of:
(i) Product planning functions which take place at the top management level.
(ii) Operationsplanninghandledby staff units. .
(iii) Operations control functions conducted by manufacturing line and staff supervisors.
Check points among the three divisIOns provide feedback regarding the adequacy of overall
resources, completeness of resource commitments and the quality of performance in carrying out
the plans. Feedback based on these checks permits a quick response to changing conditions using
the latest operating data.
MRP-II integrated system for planning and control is shown in Fig. 18.5.
The process (as shown in figure) involves developing a production plan from the business plan

Manufacturing
(Material capacity
production schedule)

Inventory
.1

Engineering
Production &
Process design

MRP
Marketing
Detailed
capacity
.[ ]
plan

. I
, Financing
J

. . [
Accounting
)

Fig. 18.5: MAP II-An integrated system for planning and control.
246 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

to specify. monthly levels of production for each product line over the next five years. The
production department then is expected to produce at the committed levels, the sales department
to sell at these levels, and the finance department to ensure adequate financial resources for these
level. Then the production plan guides the master schedule and gives the weekly quantities of
specific products to be built. Then the capacity available is roughly adequate. If not, either master
schedule or capacity is changed. Once settled, this master schedule is used in MRP to create
material requirement and priority schedules for production. Then an analysis of detailed capa~ity
requirement determines whether capacity is sufficient at each work centre during scheduled time
periods. Then the execution and control activities are determined to ensure that the master
schedule is met. "

18.11. CAPACITY REQUIREMENTS PLANNING (CRP)

Capacity is a measure of the productive capability of a facility per unit of time. Capacity decisions
begin with the initial facility layout and extend to aggregate planning, master scheduling, capacity
requirements planning.
"CRP is a technique for determining what personnel and equipment capacities are needed to
meet the production objectives embodied in the master schedule and the material requirements
plan."
CRP is an effort to develop a match between the MRP schedule and the production capacity of
the company. Determination of the capacity of the work ~entre and the capacity requir.ements
imposed on those work centres by a particular product mix enables a company to known what
level of sales, its production system can support. Thus, company will be able to make realistic
sales commitments. Capacity planning helps to avoid under utilisation of capacity and also CRP
enables the company to anticipate production bottlenecks in some work centres in time to take
corrective actions.
To be effective, capacity requirements planning must be coordinated with MRP; Working
together MRP and CRP programmes translate the master schedule to requirements for components
and capacity, simulating the impact of the master schedule that provided the input for MRP
program. CRP can be used to refine the master production schedule (MPS) further after MRP is
run.
Inputs for CRP Process
1. Planned orders and released orders from the MRP system.
2. Loading information from work centre status file.
3. Routing information from the shop routing file.
4. Changeswhichmodifycapacity,give alternativeroutingsor alterplannedorders.
The released and planned orders from the MRP system are c~mverted into standard hours of
load by the CRP system. MRP system assumed that capacity is available when needed unless
otherwise indicated.
Outputs of CRP
Apart from information for modification of capacity or revision of MPS, the major outputs of
the CRP system are the verification of planned orders for the MRP system and load reports.
The firm can plan for the average amount of labour and equipment that is expected without
actually designating the capacity for specific orders.
The flow of information in CRP is shown in Fig. 18.6.
MATERIAL REQUIREMENT PLANNING (MRP) 247

Revise

Product
Structurefile

Routing file

Production standard
file

Data about
scheduled
receipts
No

Yes Yes

, Adjust capacity

Vendors
Shop
Fig. 18.6: Flow of information in CRP.

References for Further Reading

1. Joseph Monks, Operations Management, Third Edition, McGraw Hill Book Company, New York,
(1987).
2. James Riggs, Production System-Planning Analysis mid Control, 4th Edition, John Wiley & Sons,
New York, (1987).
3. Jam6$ Dilworth, Production and Operations Management, 5th Edition, Mc<iraw Hill Comp~ny, New
York, (1993).
4. Orlicky Joseph A., Materials Requirement Plann.ing,McGraw Hill, New York, (1975).
5. Vollman J'homas et at., Manufacturing Planning and Control Systems, 3rd Edition, Homewood III,
Irwin, (1992).

REVIEW QUESTIONS
A Define MRP and CRP and BOM.
2. How MRP differs from inventory control system?
3. Explain the various terms associated with MRP.
4 Distinguish between planned receipt and scheduled receipt.
5. What are the inputs to MRP?
6. Explain MRP logic and what do you mean by time phasing.
7. What are various lot sizes used for MRP?
 248' INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

8. What are the benefits of MRP?

9. Write short notes on:
(a) Bill of Materials (BOM)
(b) Master Production Schedule (MPS)
,.
,~" (c) Product Structure
i"
,
:.
(d) MRP planning horizon
(e) CRP
.~
I
if) Outputs of CRP
(g) Manufacturing resource planning.

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