MRP

MATERIALS REQUIREMENT PLANNING

An overview of MATERIALS

REQUIREMENT PLANNING (MRP)

Material Requirements

PlanningIt is a computer-based information

system designed to handle ordering and scheduling of dependent-demand inventories (e.g. raw materials, component parts, and subassemblies).

MRP is as much a philosophy as it is a technique, and as much an approach to scheduling as it is to inventory control.

Material Requirements Planning

MRP begins with a schedule for finished goods then is converted into a schedule of requirements for the subassemblies, component parts, & raw materials needed to produce the finished items in the specified time frame.

MRP is designed to answer three questions: What is needed; How much is needed; & When is it needed?

Overview of MRP

D esignchanges

R eceipts

W ithdrawal

M asterschedule

O r

Forecast

M R P com puterprogram s

H anded-orderschedules

O rder re leases

C harges

Peform ancecontro l

P lanning reports

Exception reports

Intentiontransaction

Secondaryreports

M R P inputs M R P processing M R P outputs

Material Requirements Planning

The primary inputs of MRP are the Master Schedule, Bill of Materials, and an Inventory Records File.

Outputs from the process include Planned Order Schedules, Order Releases Changes, Performance-control Reports, Planning Reports, and Exception Reports.

MRP INPUTS1 The Master of Schedule - also referred

to as the master production schedule, states which end item are to be produced, when they are needed & in what quantities.

A master schedule for end item X

Item : X 1 2 3 4 5 6 7 8Quantity 100 150

Week number

1 2 3 4 5 6 7 8 9 10

Time period (weeks)

Assembly

The planning horiazon must cover the cumulative load time

Procurement

Fabrication

Subassembly

MRP INPUTS2 The Bill of Materials File - a listing of all

the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

- Product Structure Tree/Assembly Diagram - visual depiction of the requirements in a bill of materials, where all components are listed by levels.

ASSEMBLY DIAGRAM

Front legs

C rossbar S ide ra ils

Back supports

C rossbar

F in ishedchair

Seat

Product Structure Tree

leg s (2 ) c rossb ar

legaassem b ly

sea t

s lid era ils (2 )

c rossb ar

b acksu p p orts (3 )

b ackassem b ly

ch a ir

A Product Structure Tree for end item X

0

1

2

3

LEVEL

E (4)

D (3) E

B (2)

E (2) F (2)

C

X

EXAMPLE:

A. Determine the quantities of B, C, D, E and F needed to assemble one X.

B. Determine the quantities of B, C, D, E and F needed to assemble 200 Xs.

A.

Component QuantityB : 2Bs per X = 2

D : 3Ds per B x 2Bs per X = 6

E : 4Es per D x 3Ds per B x 2Bs per X = 24

C : 1C per X = 1

E : 2Es per C x 1C per X = 2

F : 2Fs per C x 1C per X = 2

* total Es = 28 *

B. In order to assemble 200 units of X, the quantities of each component is multiplied by 200.

B : 2 x 200 = 400Bs

D : 6 x 200 = 1,200Ds

E : 28 x 200 = 5,600Es

C : 1 x 200 = 200Cs

F : 2 x 200 = 400 Fs

A Product Structure Tree for end item X

0

1

2

3

LEVEL

E (4)

D (3) E

B (2)

E (2) F (2)

C

X

Low-level Coding - a simplified restructuring of the BOM so that all occurrences of an item coincide with the lowest level in which it appears.

0

1

2

3

LEVEL

E (4)

D (3) E

B (2)

E (2) F (2)

C

X

E E(2)

F

I J

G

G

M P

L

W

MRP INPUTS3 Inventory Records File - is used to store

information on the status of each item by time period. This includes gross requirements, scheduled receipts, and expected amount on hand. It also includes other details for each item such as supplier, lead time, and lot size. Changes due to stock receipts and withdrawals, canceled orders and similar events are also recorded in this file.

MRP PROCESSING 

MRP Processing takes the end-item MRP Processing takes the end-item requirements specified by the master requirements specified by the master schedule and “explodes” them into schedule and “explodes” them into time-time-phase phase requirement for assemblies, parts requirement for assemblies, parts and raw materials using the bill of and raw materials using the bill of materials offset by lead times. materials offset by lead times.

The quantities that are generated by The quantities that are generated by exploding the bill of materials are gross exploding the bill of materials are gross requirement, gross requirements is total requirement, gross requirements is total expected demand for the item of raw expected demand for the item of raw materials in a time period.materials in a time period.  The materials that must actually be The materials that must actually be acquired to meet the demand generated acquired to meet the demand generated by the master schedule are the net by the master schedule are the net material requirement. Net material material requirement. Net material requirement is given by the equation:requirement is given by the equation:  

Net Gross ProjectedNet Gross ProjectedRequirements = requirements – inventory + SafetyRequirements = requirements – inventory + Safety In period In period tt in period t in period t stock in period t in period t stock

For simplicity stock is omitted from the computations in examples and most problems. 

The timing and sizes of orders are determined by planned-order releases. Plan-order releases indicates a planned amount to order in each time period; equals planned-order receipts offset by lead time.

Planned-order receipts indicate the timing of the receipts Planned-order receipts indicate the timing of the receipts of these qualities. of these qualities. Planned-order receipts Planned-order receipts are quantity are quantity expected to receive by the beginning of the period in expected to receive by the beginning of the period in which it is shown.which it is shown.

Week number: 1 2 3 4 5 6 7 8

Item:

Gross requirements

Schedule receipts

Projected on hand

Net Requirements

Planned-order receipts

Planned-order releases

These quantities are used in a time-phased plan formatThese quantities are used in a time-phased plan format

1. A firm that produces wood shutter and bookcases has received two orders for one for 100 shutters and one for 150 shutters. The 100-unit order is due for delivery at the start of week 4 of the current schedule, and the 150-unit is due for delivery at the start of week 8. Each shutter consists of four slatted wood sections and two frames are ordered, and the lead time weeks assembly of the shutters requires one week. There is a schedule receipts of 70 woods section week 1. Determine the size and timing of the of the planned-order releases necessary to meet delivery requirements under each of these conditions: 

1. Lot-for-ordering 2. Lot size ordering with a lot size of 320 units for

frames and 70 units for wood sections. 

•Develop master schedule 

Week number

1 2 3 4 5 6 7 8

Quantity       100       150

  

 

Develop a product structure tree

Shutter

Frame (2) Wood

   C. Using the master schedule, determine gross requirements for shutters. Next, compute net requirements

Assuming lot-for-ordering, determine planned order receipts quantities and the planned-order release timing to

satisfy the master schedule.

Since the master schedule calls for 100 shutters to be ready to delivery, and no shutters are projected to be on hand at the start of week 4, the net requirements are also 100 shutters. Therefore, planned receipts for week 4 equal 100 shutters assembly requires one week, this means a planned order release at the start of week 3. using the logic, 159 shutters must be assembled during week 7 to be available for delivery at the start of week 8.  

The planned-order release of 100 shutters at the start of week 3 means that 200 frames must e available at that time. Since none are expected to be on hand, this generates net requirements of 200-frame, sand necessitates planned receipts of 200 frames by the start week 3. With a planned-order, release of 150 shutters at week 7 generates gross and net requirements of 300 frames for week 7 as well as planned receipts for that time. The two-week lead time means frames must be ordered at the start of week 5.

 The planned order release of 100 shutters at the The planned order release of 100 shutters at the

start of week 3 also generates gross requirements of start of week 3 also generates gross requirements of 400 wood sections at that time. However, because 70 400 wood sections at that time. However, because 70 wood sections are expected to be on hand, net wood sections are expected to be on hand, net requirements are 400 – 70 = 330. this means a planned requirements are 400 – 70 = 330. this means a planned receipts of 330 by the start of week 3. Since receipts of 330 by the start of week 3. Since fabrication, time is one-week. The fabrication must fabrication, time is one-week. The fabrication must start at the beginning of week 2.start at the beginning of week 2. 

Similarly, the planned order release of 150 shutters in Similarly, the planned order release of 150 shutters in weeks 7 generates gross requirements of 600 wood weeks 7 generates gross requirements of 600 wood sections at that point. Since no on-hand inventory of sections at that point. Since no on-hand inventory of wood sections is projected, net requirements are also wood sections is projected, net requirements are also 600, and the planned-order receipts are 600 units. 600, and the planned-order receipts are 600 units. Again, the one week lead time means 600 sections are Again, the one week lead time means 600 sections are scheduled for fabrication at the start of week 8.scheduled for fabrication at the start of week 8.

 

d. Under lot-size ordering, the only difference is the d. Under lot-size ordering, the only difference is the possibility that the planned receipts will exceed net possibility that the planned receipts will exceed net requirements. The excess is recorded as projected requirements. The excess is recorded as projected inventory in the following period.inventory in the following period.

 

Pegging – it denotes working with the MRP processing in reverse; that is, identifying the parent items that have generated a given set of material requirements for some item.

UPDATING THE SYSTEM

A material requirements plan is not a static document. As time passes, some orders will have been completed, other orders will be nearing completion, and new orders will have been entered.

Regenerative System

Advantages: Disadvantagese:

It is best suited to fairly stable systems.

Processing costs are typically less.

The potential amount of lag between the time information becomes available and the it can be incorporated into the material requirements plan.

Net-change SystemAdvantages:

Best suited to systems that have frequent changes

Management can have up-to-date information for planning and control purposes.

Disadvantage:

The computer processing costs involved in continuous updating the system and the constant state of flux in a system caused by many small changes

Two basic systems used to update MRP records

1. Regenerative System – an approach that updates MRP records periodically.

2. Net-change system – an approach that updates MRP records continuously.

MRP OUTPUTS Primary Reports

• Planned Orders• Order Releases• Changes to Planned Orders

• Performance-control Reports

• Planning Reports• Exception Reports

Secondary Reports

Other Considerations Safety Stock

Theoretically, inventory systems with dependent demand should not require safety stock below the end item. This is one of the main advantage of an MRP approach.

Lot Sizing

Choosing a lot size for ordering or production.

Other Considerations

Lot-for-lot Ordering

Perhaps the simplest of all methods. The order or run size for each period is set equal to demand for that period.

Economic Order Quantity Model

lead to minimum costs if usage is fairly uniform

how much to order

Fixed Period Ordering Provides coverage for some predetermined

number of periods order to cover a two-period interval the span is simply arbitrary

Part Period Model Refers to holding a part or parts over a

number of periods EPP = set-up cost

unit holding cost per period

Capacity Requirements

Planning process of determining short-range

capacity requirements

planned orderreleases for

MRP

current shopload

routinginform ation

jobtim es

C R PLO C A L

R E P O R TS

Using MRP to assist in planning capacity requirements

U se M R P to s im ulatem ateria l requirem ents

D evelop a tentativem aster production

schedule

C onvert m ateria lrequirem ents to

resourcerequirem ents(load report)

Is shop capacityadequate?

F irm up a portionof the M PS

C hangecapacity

C an capacitybe change to m eet

requirem ents?

R evise tentativem aster production

schedule

Yes Yes

N o

N o

A hypothetical department load report

N ow inproducrion

P lannedorder

re leases

Expectedorders

Capacity

1 2 3 4 5 6 7 8 9 10 11 12 130

Lo

ad

(u

nits p

er

pe

rio

d)

For instance, if 100 units of product A are scheduled in the fabrication department, and each unit has a labor standard time of 2 hrs & a machine standard time of 1.5 hrs, then 100 units of A convert into these capacity requirements: labor : 100 units x 2hrs/unit = 200 labor hrs machine : 100 units x 1.5 hrs/unit = 150 machine

hrs

required x 100 = 150hrs x 100 = 75% available 200hrs

BENEFITS AND REQUIREMENTS OF

MRP

BENEFITS

1.Low levels of in-process inventories.

2.The ability to keep track of material requirements.

3.The ability to evaluate capacity requirements generated by a given master schedule.

4.A means of allocating production time.

REQUIREMENTS

1.A computer and the necessary software programs to handle computations and maintain records.

2.Accurate and up-to-datea.Master schedulesb.Bills of materialsc.Inventory records

3.Integrity of file data.