Material Requirements

Planning

Question: how do firms actually organize things

to turn materials into finished products?

Materials Requirements
Planning

Material Requirements Planning (MRP) is a

computer-based production planning and
inventory control system.
MRP is concerned with both production scheduling
and inventory control.
It is a material control system that attempts to
keep adequate inventory levels to assure that
required materials are available when needed.
MRP is applicable in situations of multiple items
with complex bills of materials.

Material Requirements
Planning

Materials

requirements planning (MRP) is the

logic for determining the number of parts,
components, and materials needed to
produce a product.
MRP provides time scheduling information
specifying when each of the materials, parts,
and components should be ordered or
produced.
Dependent demand drives MRP.
MRP is a software system.

Objective of MRP

To

provide the right parts at the right

time to meet the schedules for
completed products.

The major objectives of an MRP system

are
1. Ensure the availability of materials,
components, and products for planned
production and for customer delivery,
2. Maintain the lowest possible level of
inventory,
3. Plan manufacturing activities, delivery
schedules, and purchasing activities.

Inputs of MRP system

The

three major inputs of an MRP

system are the master production
schedule, the product structure
records, and the inventory status
records.
Without these basic inputs the MRP
system cannot function.

Master Production Schedule

(MPS)
Time-phased

plan specifying how

many and when the firm plans to build
each end item
Aggregate
AggregatePlan
Plan
(Product
(ProductGroups)
Groups)

MPS
(Specific End Items)

Master production schedule (MPS)

The demand for end items is scheduled over a

number of time periods and recorded on a master
production schedule (MPS).
The master production schedule expresses how
much of each item is wanted and when it is wanted.
The MPS is developed from forecasts and firm
customer orders forend items, safety stock
requirements, and internal orders.
MRP takes the master schedule for end items and
translates it into individual time-phased component
requirements

10

Firm orders
from known
customers

Aggregate
product
plan

Forecasts
of demand
from estimates

Engineering
design
changes

Master
production
schedule
(MPS)

Inventory
transactions

Bill of
material
file

Material
planning
(MRP)

Inventory
record
file
Reports

Bill of Materials (BOM) File

The

product structure records, also known

as bill of material records (BOM),
Contain information on every item or
assembly required to produce end items.
Information on each item, such as part
number, description, quantity per assembly,
next higher assembly, lead times, and
quantity per end item, must be available.

Bill of Materials (BOM) File

A Complete Product Description

Materials
Parts
Components
Production sequence
Modular BOM

Planning BOM or kits

Component or Subassemblies BOM

create an artificial parent to the BOM used for
inexpensive items like washers or pins to group.

Explosion: revealing the requirements for each

component.

Coding
If

identical items
exist at various
levels in the BOM:
is coded at
lowest level at which
it occurs
D (Level 2 or Level
3)
This number
identifies the part at
the lowest level of
usage.

Item

Inventory Records File

The

inventory status records contain the

status of all items in inventory, including on
hand inventory and scheduled receipts.
These records must be kept up to date,
with each receipt, disbursement,or
withdrawal documented to maintain record
integrity.

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.

Additional MRP Scheduling

Terminology

Gross Requirements: needed during each period.

Scheduled Receipts: Existing orders that arrive at beginning

of period.

On-hand or available balance:

(depending on software convention, could be at the beginning of

each period or end):

Book: Inventory balance at end of each period.

Net requirements: What is need to meet requirements and

safety stock.

Planned order receipt: arrives at beginning of period.

Planned order release: Addresses lead time.

MRP Examples

Example of MRP Logic and

Product Structure Tree
Given the product structure tree for A and the lead time and demand
information below, provide a materials requirements plan that defines
the number of units of each component and when they will be needed.
Product Structure Tree for Assembly A

A
B(4)
D(2)

C(2)
E(1)

D(3)

F(2)

Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)

First, the number of units of A are scheduled backwards to

allow for their lead time. So, in the materials requirement plan
below, we have to place an order for 50 units of A in the 9th
week to receive them in the 10th week.

Day:
A Required
Order Placement

9
50

LT = 1 day

10
50

Next, we need to start scheduling the components that make up A. In

the case of component B we need 4 Bs for each A. Since we need 50
As, that means 200 Bs. And again, we back the schedule up for the
necessary 2 days of lead time.

LT = 2
A
B(4)
D(2)

4x50=200

C(2)
E(1)

D(3)

Spares

F(2)

Finally, repeating the process for all components, we have the

final materials requirements plan:

A
Part D: Day 6

B(4)
D(2)

40 + 15 spares

C(2)
E(1)

D(3)

F(2)

22

MRP Example
You

are producing skateboards, and

each consists of one unit of board,
and two units of subassembly of
roller-set. Roller-sets are produced
inside the plant, and consist of two
components rollers and axles.
Prepare the MRP tables of all items.

Closed Loop MRP

Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning

No
Feedback

Realistic?

Yes
Execute:
Capacity Plans
Material Plans

Feedback

Lot Sizing in MRP

Programs
Lot-for-lot

(L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
Part Period Balancing-changing lot
sizes to reflect requirements in the
future (how many periods should be
combined to reduce cost)

Tinker Toy Lawn Mower