Chapter 4

Materials Requirement
Planning
This chapter will describe bills of material
(the major building block of material
requirements planning), detail the MRP
process, and explain how the material
requirements plan is used.
But first, some details about the environment
Nature of Demand
in which
There
MRP operatesare two types of demand:
independent and dependent. Independent
demand is not related to the demand for any
other product.
For example, if a company makes wooden
tables, the demand for the tables is
 Independent versus Dependent
Demand
• Independent Demand
– Not related to demand for other assemblies or
products, instead from outside sources
– Generally forecasted demand
• Dependent Demand
– Generally related to production of an end
product (as defined on the MPS)
– Can be calculated instead of forecasted
 Dependent Demand Approach –
Materials Requirement Planning
(MRP)
• It establishes a schedule (priority plan)
showing the components required at each
level of the assembly and, based on lead
times, calculates the time when these
components will be needed
• MRP is a priority plan for the components
needed to make the products in the MPS
• MPS items are of independent demand
while that in MRP are of dependent
demand
Objectives of MRP:
Determine requirements
Keep priorities current

Determine requirements:
The main objective of any manufacturing
planning and control system is to have the
right materials in the right quantities available
at the right time to meet the demand for the
firm’s products.
Determine requirements must
determine the following:
• What to order
• How much to order
• When to order
• When to schedule delivery
Keep priorities current:
 In this ever-changing world, a material
requirements plan must be able to recognize
priorities to keep plans current.
 It must be able to add and delete, expedite,
delay, and change orders.
 Linkages with other MPC
functions
• MPS drives the MRP
• MRP is a priority plan for the components needed to
make the products in the MPS
• It is valid only if capacity is available when needed to
make the components
• Process of checking capacity against requirements id
called CRP
• MRP drives PAC and purchasing.
• PAC and purchasing must plan and control the
performance of orders to meet the due dates.
Manufacturing planning and control sy
 Inputs to MRP

Master production schedule

Inventory records

Bills of material
 Major Inputs to MRP
• Master Production Schedules quantities
and times.
• Inventory records of all items to be
planned
– Planning factors such as lead times, order
quantities, and safety stock
– Current status of each item
• Bills of material for MPS items
 Master Production
schedule
It is a statement of which
end items are to produced,
the quantity of each, and
the dates they are to be
completed. It drives the
MRP system by providing
 Inventory Records
A major input to MRP is inventory. When a
calculation is made to find out how many are
needed, the quantities available must be
considered.

– It includes two kinds of information. One is

planning factors, this includes information such
as order quantities, lead times, safety stock,
and scrap.

– The second kind of information necessary is on

the status of each item. The MRP needs to
 Bill of Material (BOM)
– The bills of material shows all the parts required
to make one of the item.

– Each part or item has only one part number.

Thus, if a particular number appears on two
different bills of material, the part so identified is
the same.

– A part is defined by its form, fit, or function. If

any of these change, then it is not the same part
and it must have a different part number.
Example : Description : TABLE
Part no. : 100
 BOM structure
• It is the overall design for the
arrangement of BOM files
• Several formats for BOM
 Product tree
 Parent-component relationship
 Multilevel bill
 Multiple bill
 Single-level bill
 Indented Bill
 Summarized parts list
 Product tree
• Figure shows a product tree
• It is conventional way to think about BOM but it is
seldom used except for teaching and testing.
 Parent component relationship
• An assembly is considered a parent , and the
items that comprise it are called its components
items
• Figure in previous slide shows the parent-
component relationship of the table (P/N 100).
• Unique part numbers have also been assigned
to each part to make identification of the part
absolute
 Multilevel Bill
• They are formed as logical groupings of parts into
subassemblies based on the way product is
assembled. For ex. A frame, chassis, doors,
windows, and engine are required to construct an
automobile
• One convention used in such case is that the last
items on the tree (leg bolts, legs, ends, sides, glue,
and boards) are all purchased items
• Generally BOM is not complete until all branches of
the product structure tree end in a purchased part
• Each level in the BOM is assigned a number
starting from top and working down
• The top level, or end product level , is level zero,
and its components are at level one
 Multilevel Bill
Table
100

Base Top
200 023

Legs(4) Leg Frame(1) Boards Glue

203 Frame 300 030 066

Slides(2) Ends(2) Leg Glue

622 411 supports (4) 066
533
 Multiple Bill
• It is used when companies usually make more than
one product , and the same components are often
used in several products
• Using example of table, this company makes two
models. They are similar except the tops are different
• Next slide shows two types of multiple bills . Because
boards used in the top are different, each top has a
different part number
 Table
150
Base Top
200 023

Legs(4) Leg Frame(1) Boards Glue

203 Frame 300 030 066

Slides(2) Ends(2) Leg Glue Table

622 411 supports (4) 066 100
533
Base Top
200 023

Legs(4) Leg Frame(1) Boards Glue

203 Frame 300 030 066

Slides(2) Ends(2) Leg Glue

622 411 supports (4) 066
533
 Single–level bill
• Contains only parent and its immediate
components, which is why it is called single-level
bill
• It can be seen in previous slide
• There are six single –level bills
• There are many components common to both
tables
• Computer stores information describing the product
structure as a single level bill
• A series of single-level bills is needed to completely
define a product.
Single–level bill
 Advantages of single level bills
• Duplication of records are avoided

• The number of records and, in computer

systems, the file size is reduced by
avoiding duplication of records

• Maintaining bills of material is simplified

 Example:
Using the following product tree, construct the
appropriate single-level trees. How many Ks are
needed to make 100 Xs and 50 Ys?
Answer:
 Indented Bill
• A multilevel bill of material can also be shown as an
indented bill.
• It uses indentations as away of identifying parents
from components.
• The components of the parent table are listed flush
left, and their components are
• indented. The components of the base (legs, leg
bolts, and frame) are indented immediately
• below their parents.
 Planning bill
• An artificial grouping of components for
planning purposes.
• used to simplify forecasting, master
production scheduling, and material
requirements planning.
• They do not represent buildable products
but an average product.
Suppose the company manufactured tables
with three different leg style, three different
sides and ends, and three different tops.
percentage for each category of component
adds up to 100%.
 Summarized Parts list
Part Description Quantity ordered
number
203 Wooden leg 4
411 Wooden ends 2
622 Wooden slides 2
023 Table top 1
722 Hardware kit 1

Such table is called as summarized parts list

It lists all the parts needed to make one complete assembly .

Such type of list is produced by the product design engineer
and does not contain any information about the way the
product is made or assembled
Where-used report & Pegging report

• Where-used report: Where-used reports give

the same information as a bill of material, but the
where-used report gives the parents for a
component whereas the bill gives the
components for a parent. A component may be
used in making several parents. Wheels on an
automobile, for example, might be used on
several models of cars. A listing of all the
parents in which a component is used is called a
where-used report.
• This has several uses, such as in implementing
an engineering change, or when materials are
Where-used report & Pegging report

• Pegging report : A pegging report is similar to a

where-used report. However, the pegging report
shows only those parents for which there is an
existing requirement, Whereas the where-used
report shows all parents for a component.

• The pegging report shows the parents creating

the demand for the components, the quantities
needed, and when they are needed. Pegging
keeps track of the origin of the demand.
 Uses of BOM
• Product definition: the bill specifies the components
needed to make the product
• Engineering change control: in product design change of a
product and the component used. These changes must be
recorded and controlled using BOM
• Service parts: replacement parts needed to repair a
serviceable component
• Planning: purchase or make, schedule of material to satisfy
MPS
• Order entry: in situations when a product has a very large
number of options (e.g. cars)
• Manufacturing: list of parts needed to make or assemble a
product
• Costing: structure for direct material, cost overhead.
 MRP process
The purpose of material requirements planning is
to determine the components needed, quantities,
and due dates so items in the master production
schedule are made on time.
• Exploding and offsetting
• Gross requirements
• Releasing orders.
• Capacity Requirements Planning
• Low-level coding and netting.
• Multiple Bills of Material
 Exploding and Offsetting
Lead Time : It is the span of time needed to perform
process. It includes time for order preparation, queuing,
processing, moving, receiving and inspecting, and any
expected delays.

Exploding the requirements: It is a process of multiplying

the requirements by the usage quantity and recording the
appropriate requirements throughout the product tree.

Offsetting: It is a process of placing the exploded

Requirements in proper periods based on lead time.
Example: if 50 units of A are required in week 5, the order to
assemble the As must be released in week 4, and 50 Bs and
50 Cs must be available in week 4
 A
LT:1

B C
LT:2 LT:1

D E
LT:1 LT:1
 Planned Orders

• If it is planned to receive 50 of part A in

week 5 and the lead time to assemble an
A is one week, the order will have to be
released and production started no later
than week 4
• There should be a planned order receipt
for 50 in week 5 and a planned order
release for that number in week 4.
 Exploding and offsetting

Exploding and offsetting

 Example:
Using the product tree and lead times shown in Figure,
complete the following table to determine the planned order
receipts and releases. There are 50 As required
in week 5 and 100 in week 6.
 Gross and Net requirements
• If there are 20 As in stock, only 30 need to be
made. The requirements for component parts
would be reduced accordingly. It can be
calculated as follows :
Gross requirements = 50
Inventory available = 20
Net requirements = gross req. – available
inventory
Net requirements = 50-20=30

The planned order release of parent becomes

the gross requirement for the component
 Example:
Complete the following table. Lead time for the
part is two weeks. The order quantity (lot size) is
100 units.
Answer:
 Releasing Orders
• A computer-based material requirements planning
system automatically recalculates the requirements for
subassemblies and components and re-creates planned
order releases to meet the shifts in
• Planned order releases are just planned; they have not
been released. It is the responsibility of the material
planner to release planned orders, not the computer
demand.
• Releasing an order means that authorization is given to
purchasing to buy the necessary material or to
manufacturing to make the component.
• When a manufacturing order is released
the computer will allocate the required
quantities of a parent’s components to that
order.
• This does not mean the components are
withdrawn from inventory but that the
projected available quantity is reduced.
 Scheduled receipts
• Scheduled receipts are orders placed on
manufacturing or on a vendor and
represent a commitment to make or buy.
• The scheduled receipts row shows the
quantities ordered and when they are
expected to be completed and available.
 Open orders
• Scheduled receipts on the MRP record are
open orders on the factory or a vendor
and are the responsibility of purchasing
and of production activity control.
• When the goods are received into
inventory and available for use, the order
is closed out, and the scheduled receipt
disappears to become part of the on-hand
inventory.
Scheduled receipts.
 Net requirements
• The calculation for net requirements can
now be modified to include.
Net requirements = gross requirements
- scheduled receipts -
available inventory
scheduled receipts
 EXAMPLE PROBLEM
• Complete the following table. Lead time for the
item is two weeks, and the order quantity is 200.
What action should be taken?
Answer

The order for 200 units should be released.

 Basic MRP Record
There are several points that are important.
• The current time is the beginning of the first period.
• The top row shows periods, called time buckets. These
are often a week but can be any length of time
convenient to the company. Some companies are
moving to daily time buckets. e several points that are
important.
• The number of periods in the record is called the
planning horizon, which shows the number of future
periods for which plans are being made. It should be at
least as long as the cumulative product lead time.
• An item is considered available at the
beginning of the time bucket in which it is
required.
• The quantity shown in the projected on-
hand row is the projected on-hand balance
at the end of the period.
• The immediate or most current period is
called the action bucket. A quantity in the
action bucket means that some action is
needed now to avoid a future problem.
 Capacity Requirements
Planning
• As occurred in the previous planning
levels, the MRP priority plan must be
checked against available capacity. At the
MRP planning level, the process is called
capacity requirements planning (CRP).
The next chapter examines this problem in
some detail. If the capacity is available,
the plan can proceed. If not, either
capacity has to be made available or the
priority plans changed
Low-Level Coding and Netting:

A component may reside on more than one level in

a bill of material. If this is the case, it is necessary
to make sure that all gross requirements for that
component have been recorded before netting
takes place. Consider the product shown in Figure
Low-Level Coding and Netting:
 Procedure:
• 1. Starting at level zero of the tree, determine if any of the parts
on that level have a low-level code of zero. If so, those parts
occur at no lower level, and all the gross requirements have been
recorded. These parts can, therefore, be netted and exploded down
to the next level, that is, into their components.
• If the low-level code is greater than zero, there are more gross
requirements, and the part is not netted.

• The next step is to move down to level 1 on the product tree and to
repeat the routine followed in step 1. Since B has a low-level code of
1, all requirements for B are recorded, and it can be netted and
exploded. The bill of material for B shows that it is made from a C
and a D.
Figure 4.18 shows the result of netting and exploding the Bs. Part C
has a low-level code of 2, which tells us there are further requirements
for Cs and at this stage they are not netted..
3. Moving down to level 2 on the product tree, we find that
part C has a low-level code of 2. This tells us that all gross
requirements for Cs are accounted for and that we can
proceed and determine its net requirements. Notice there is
a requirement for 30 Cs in week 4 to be used on the As
and a requirement of 20 Cs in week 3 to be used on the Bs.
Looking at its bill of material, we see that it is a purchased
part and no explosion is needed.

• Figure 4.19 shows the completed material requirements

plan. The process of level-by-level netting is now
completed using the low-level codes of each part. The
low-level codes are used to determine when a part is
eligible for netting and exploding.
Sample Material Requirements Plan

Figure 4.19: Completed material requirements plan

 Multiple Bills of Material
• Most companies make more than one product
and often use the same components in many of
their products.
• The material requirements planning system
gathers the planned order releases from all the
parents and creates a schedule of gross
requirements for the components.
• The same procedure used for a single bill of
material can be used when multiple products are
being manufactured.
 Terminology of MRP:
Gross requirements:
The overall quantity of an item needed at the end of a period to meet
planned output levels.
Planned output for end items are obtained from MPS.
Planned output for lower level items is obtained from MRP
Scheduled receipts:
The quantity of an item that will be received at the beginning of a
time period from suppliers as a result of orders that have already
been placed.
Net requirements:
It is calculated on gross requirements—scheduled receipts—
amounts available from previous period.
Planned order release:
The quantity of an item that is planned to be ordered and the
planned time period for releasing this order that will result in the order being
received when needed.
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 the net requirements for
the period.
 Open orders
• Scheduled receipts on the MRP record are
open orders on the factory or a vendor
and are the responsibility of purchasing
and of production activity control.
• When the goods are received into
inventory and available for use, the order
is closed out, and the scheduled receipt
disappears to become part of the on-hand
inventory.
 Released orders
• Releasing, or launching, a planned order
is the responsibility of the planner. When
released, the order becomes an open
order to the factory or to purchasing and
appears on the MRP record as a
scheduled receipt.
• It is then under the control of the planner,
who may expedite, delay, or even cancel
the order
Managing the Material Requirements
Plan
The planner receives feedback from many
sources such as:
• Suppliers’ actions through purchasing.
• Changes to open orders in the factory such
as early or late completions or differing
quantities.
• Management action such as changing the
master production schedule.
Priority: Priority refers to maintaining the correct due dates
by constantly evaluating the true due-date need for
released orders and, if necessary, expediting/deexpediting.

Consider the following MRP record. The order quantity is

300 units and the lead time is three weeks.

What will happen if the gross requirements in week 2 are changed from 50
units to 150? The MRP record will look like the following.
Note that there is a shortage of 100 units in week 2 and
that the planned order release originally in week 2 is now in
week 1. What can the planner do?
One solution is to expedite the scheduled receipt of 300
units from week 3 to week 2. If this is not possible,
the extra 100 units wanted in week 2 must be rescheduled
into week 3.
Also,there is now a planned order release in week 1, and
this order should be released.
• Bottom-up replanning: Action to correct for changed
conditions should occur as low in the product structure
as possible. Suppose the part in the previous example is
a component of another part. The first alternative is to
expedite the scheduled receipt of 300 into week 2. If this
can be done, there is no need to make any changes to
the parent. If the 300 units cannot be expedited, the
planned order release and net requirement of the parent
must be changed.
• Reducing system nervousness:
Sometimes requirements change rapidly
and by small amounts, causing the
material requirements plan to change back
and forth. The planner must judge whether
the changes are important enough to react
to and whether an order should be
released. One method of reducing system
nervousness is firm planned orders.
 Points About the MRP Record

• Current time – beginning of first period (often

called time buckets)
• Items considered available at beginning of period
• Quantity in Projected Available row considered at
end of period
• Current period often called action bucket – action
should be taken to avoid a future problem
 Planner Responsibilities for
MRP
• Launch Orders – Production or Purchasing
• Reschedule orders as required
• Reconcile errors and search for causes
• Solve critical material shortages
– Replan
– Expedite
• Coordinate with other functions to resolve
problems
 Other Key Terms

• Firm Planned orders – Orders not yet released,

but “frozen” in quantity and time to reduce
system “nervousness”
• Exception messages – messages generated by
the computer signaling planner action needed
• Bottom-up replanning – actions to correct for
changed conditions made as low as possible in
the product structure
Summary:
• The job of the MRP is to produce the right components
at the right time so that the MPS can be maintained. The
MRP depends on accurate bills of material and on
accurate inventory records.

• Bills of material can be created in many ways, but one

department (or individual) must be responsible for them.
Inventory records are indispensable to the MRP, and the
MRP is only as good as the inventory records.
Summary:
• The MRP exploding and offsetting processes
outlined in this book are largely done by the
computer. The logic used is repetitive and, while
error prone when done by individuals, can be
accomplished well by computer.

• Good MRP practice is achieved by planners

being able to work with the system.
 Product tree structure

Level in tree
A 0
U=1 U=1
Sub assembly I II 1

U=1 U=2
U=1 U=1

4 2
1 2 3 U=1 U=1

U=1 1
b 3
U=1
a
U=Usage a 4
 Product tree structure

Level in tree
A 0
U=1 U=1
Sub assembly I II 1

U=1 U=2
U=1 U=1

4 2
1 2 3 U=1 U=1

U=1 1
b 3
U=1
a
U=Usage a 4
 ITEM OH LEAD TIME
( WEEKS)
END TIME A 0 1
SUB ASSEMBLY I 40 1
SUB ASSEMBLY II 15 2
PART 1 10 3
PART 2 20 4
PART 3 15 1
PART 4 30 2
RAW MATERIAL aa 10 3
RAW MATERIAL ba 10 3
 Product tree structure

Level in tree
A 0
U=1 U=1
Sub assembly I II 1

U=1 U=2
U=1 U=1

4 2
1 2 3 U=1 U=1

U=1 1
b 3
U=1
a
U=Usage a 4
 ITEM OH LEAD TIME
( WEEKS)
END TIME A 0 1
SUB ASSEMBLY I 40 1
SUB ASSEMBLY II 15 2
PART 1 10 3
PART 2 20 4
PART 3 15 1
PART 4 30 2
RAW MATERIAL aa 10 3
RAW MATERIAL ba 10 3
 MPS for end item A
0 1 2 3 4 5 6 7 8 9 10
GR 0 20 100
OH 0 0 0 0 0 0 0 0
POR 20 100
Part-I lead time 1 week
0 1 2 3 4 5 6 7 8 9
GR 20 100
OH 40 40 40 40 40 40 20 20 0 0
POR 80

PART-II Lead time 2 week

0 1 2 3 4 5 6 7 8 9
GR 20 100
OH 15 15 15 15 15 15 0
POR 5 100
 PART-2 Lead time 4 week
0 1 2 3 4 5 6 7 8 9
GR 80
OH 20 20 20 20 20 20 20
POR 60

PART-3 Lead time 1week

0 1 2 3 4 5 6 7 8 9
GR 5 100
OH 15 15 15 15 10 10 0 0 0 0
POR 90

PART-4 Lead time 2 week

0 1 2 3 4 5 6 7 8 9
GR 10 200
OH 30 30 30 30 20 20 0 0 0 0
POR 180
 PART-1 Lead time 3 week
0 1 2 3 4 5 6 7 8 9
GR 180 80
OH 10 10 10 10 0 0 0 0 0 0
POR 170 80

Raw material b lead time 3 week

0 1 2 3 4 5 6 7 8 9
GR 180
OH 10 10 10 10 0 0 0 0 0 0
POR 170

Raw material a lead time 3 week

0 1 2 3 4 5 6 7 8 9
GR 170 80
OH 10 0 0 0 0 0 0 0 0 0
POR 80 0 0 0 0 0 0 0 0
SRa 160
•
EXAMPLE
Given the following product tree, explode, offset, and determine the gross and net requirements. All lead times are
one week, and the quantities required are shown in parenthesis. The master production schedule calls for 100 As to
be available in week 5.There are 20 Bs available.
Week 1 2 3 4 5

Part A Gross requirements 100 100

Lead time:1 week
Scheduled receipts 0
Projected Available 100
Net Requirements 100
Planned Order Receipt 100
Planned Order release

Part B Gross requirements 180 200

Lead time:1 week
Scheduled receipts 0
Projected Available 180
Net Requirements 180
Planned Order Receipt
Planned Order release

Part C Gross requirements 100 100

Lead time:1 week
Scheduled receipts 100
Projected Available 100
Net Requirements
Planned Order Receipt
Planned Order release

Part D Gross requirements 380 380

Lead time:1 week
Scheduled receipts 0
Projected Available 380
Net Requirements 380
Planned Order Receipt
Planned Order release

Part E Gross requirements 180 180

Lead time:1 week
Scheduled receipts 0
Projected Available 180
Net Requirements 180
Planned Order Receipt
Planned Order release

Part F Gross requirements 100 100

Lead time:1 week
Scheduled receipts 0
Projected Available 100
Net Requirements 100
Planned Order Receipt
Planned Order release
“The things we do for planning hurt
our ability to be flexible, whereas the
things we do to be flexible disregard
certain critical planning
requirements.”

Thank you..