Material Requirements

Planning

12-Apr-16

WHAT MRP DOES ?

MASTER SCHEDULE
FOR END ITEMS

MRP
DETAILED SCHEDULE FOR
RAW MATERIALS &
Dependent demand
lumpy
12-Apr-16

COMPONENTS
USED IN THE END PRODUCTS
2

INDEPENDENT VS DEPENDENT DEMAND

Independent Demand:
Demand unrelated to demand of other products
(end products, spare parts)
Usually forecast
Conventional inventory control (EOQ,
Wagner/Whitin) applicable.

12-Apr-16

INDEPENDENT VS DEPENDENT DEMAND

.

Dependent Demand:
Demand directly related to demand of some
other product (components, raw materials,
subassemblies)
Requirements derived from delivery schedule
of end items.
MRP is the appropriate tool for planning &
control of manufacture inventories
raw materials
WIP
Component parts
Subassemblies
12-Apr-16

LUMPY DEMAND

Avg.
rate of
demand

CONTINUOUS DEMAND
Assumed in economic lot size
formula

Inv.
LEVEL
TIME

Inv.
LEVEL

t1 t2

t3

t4 t5

t6

LUMPY DEMAND
TYPICAL OF MRP
APPLICATIONS
(raw materials, components
sub-assemblies consumed in
Large increments
corresponding to a certain
batch of final product)

TIME
12-Apr-16

LEAD TIMES
Ordering Lead Time:
(for purchased parts)
Initiation of
purchase
requisition

Receipt of item from vendor

(off shelf / fabricate)

Manufacturing Lead Time:

Place order

Process part through sequence of

machines as given on route sheet
(operation + non-productive times)

Item delivered

In MRP, lead times are used to determine starting dates for

assembling final products and subassemblies, for producing
component parts, and for ordering raw materials.
12-Apr-16

INPUTS TO MRP
The master production schedule and other
order data.

The bill of materials file. (The product

structure)
The inventory record file.

12-Apr-16

COMMON USE ITEMS

BASIC RAW MATERIAL
COMPONENTS

C1

C2

C3

Cn

PRODUCTS

P1

P2

P3

PN

MRP collects the common use items from different products to

effect economics in ordering the raw materials and
manufacturing the components/sub assemblies
12-Apr-16

STRUCTURE OF AN MRP SYSTEM

Customer
orders

Sales
forecasts

Service
Parts
requirements

Engg.
changes

Master
Production
schedule

Inventory
transactions

Bill of
Materials
file

MRP
PROCESSOR

Inventory
Record
file

OUT PUT
REPORTS

Gross &
Net requirements
report
12-Apr-16

Capacity vs
Load report

Shop floor
Planning
report

Production Order
Status & exceptions
report
9

MASTER PRODUCTION SCHEDULE

Week no

Product P1
Product P2

50
70

80

10
100

25

Etc.

TYPICAL INFORMATION IN MPS:

(a) What end products are to be produced?
(b) How many of each product to be produced?
(c) When the products are to be ready for shipment?
Firms customer orders

DEMAND

Forecasted demand

Often excluded from MPS,

Demand for individual component
since it does not include
Parts (for repair and service)
end product demand.
12-Apr-16

10

BILL OF MATERIALS (BOM) FILE

Level 0
(product)

P1

Level 1
(sub-assemblies)

Level 2
(raw materials)

S1
C1

C2
(1)

S2

(1)

C3
(4)

C4
(1)

(2)

C5
(2)

C6
(2)

(1)

Sub assembly S1 is the PARENT of components C1,

C2 & C3. Any engg. Changes affecting product
structure must be fed to BOM file.
12-Apr-16

11

INVENTORY RECORD FILE

Accurate current data on inventory status
Generally computerized (item master file)

Lead times must be established in inventory

Record file

Ordering
Lead time

Manufacturing
Lead time

Purchasing
records

Process
Route
sheets

INVENTORY TRANSACTIONS (issue, arrivals, order

placement/realization) MUST BE KEPT CURRENT
12-Apr-16

12

INPUTS FOR MRP EXAMPLE

P2

P1
S1
C1

(1)

C2

S2

(1)

C3

(4)

(1)

C4

(2)

C5

S3

(2)
(2)

C6

(1)

C4

(1)

S4

(1)

C6

C7

(4)

(2)

C2

(1)

C8

(2)

(1)

M4

PRODUCT STRUCTURE FOR PRODUCTS P1 & P2

Week
P1
P2

7
70

8
50
80

Initial inventory status for M4

PERIOD
1 2 3 4 5 6
ITEM RAW MATERIAL M4
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
40
ON HAND
90
50
NET REQUIREMENTS
PLANNED ORDER RELEASES
12-Apr-16

Master
Production
Schedule

10
100

25

Lead times (in weeks)

Assembly

Manufacturing

Ordering

P1 = 1
P2 = 1
S2 = 1
S3 = 1

C4 = 2

M4 = 3

13

BASIC MRP LOGIC

Input MPS, BOM, Inventory Status, Lead

times
Do Parts Explosion
Offset requirements by lead times
Netting of requirements from Gross by
considering availabilities
Lot sizing of net requirements for
procurement or production
12-Apr-16

14

PERIOD

10

ITEM PRODUCT P1
GROSS REQUIREMENTS

50

100

50

100

SCHEDULED RECEIPTS
ON HAND

NET REQUIREMENTS
PLANNED ORDER RELEASES

50

100

ITEM PRODUCT P2

GROSS REQUIREMENTS

70

80

25

70

80

25

80

25

SCHEDULED RECEIPTS
ON HAND

NET REQUIREMENTS
PLANNED ORDER RELEASES

12-Apr-16

70

15

PERIOD

10

ITEM SUB ASSEMBLY S2

GROSS REQUIREMENTS

100

200

100

200

SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES

100

200

ITEM SUB ASSEMBLY S3

GROSS REQUIREMENTS

70

80

25

70

80

25

80

25

SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS

PLANNED ORDER RELEASES

12-Apr-16

70

16

PERIOD

10

ITEM COMPONENT C4
GROSS REQUIREMENTS

70

280

25

400

70

280

25

400

SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES

70

280

25

400

GROSS REQUIREMENTS

70

280

25

400

SCHEDULED RECEIPTS

40
25

400

ITEM RAW MATERIAL M4

ON HAND

50

NET REQUIREMENTS
PLANNED ORDER RELEASES

12-Apr-16

260

90

20

-20

260

25 400

17

MRP OUTPUT REPORTS

Primary Outputs:
1. Order release notice, to place orders that have been
planned by the MRP system
2. Reports showing planned orders to be released in future
periods.
3. Rescheduling notices, indicating changes in due dates for
open orders.
4. Cancellation notices, including cancellation of open orders
because of changes in the master schedule
5. Reports on inventory status.
12-Apr-16

18

MRP OUTPUT REPORTS

Secondary Outputs
1. Performance reports of various types costs, item usage,

actual vs planned lead times and other measures of

performance.
2. Exceptions reports showing deviations from schedule,

overdue orders, scrap, and so on.

3. Inventory forecasts indicating projected inventory levels
(both aggregate inventory as well as item inventory) in

future periods.

12-Apr-16

19

BENEFITS OF MRP

1. Reduction in inventory (30-50% in WIP)

2. Improved customer service (late orders reduced by 90%)
3. Quicker response to changes in demand and master
schedule.
4. Greater productivity
5. Reduced set up and product changeover costs
6. Better machine utilization
7. Increased sales and reductions in sales price.

12-Apr-16

20

EVOLUTION OF MRP
Improved
computational
efficiency of
computers

AN IMPROVED ORDERING METHOD

Unrealistic M/c
schedules, ignoring
plant capacities

PRIORITY PLANNING

Not only plans priorities

but provides feedback to
executing the priority
plan

CLOSED LOOP MRP

MRP II
Manufacturing
Resource
Planning

(Links functions
-Capacity planning
-Inventory management
-Shop floor control
-MRP)

Links up the closed loop MRP system with the

financial systems of the company
12-Apr-16

21

FOR CLASSES OF MRP USERS

Class A (most advanced)

Uses closed loop MRP

Integrated System has MRP, Capacity planning, shop
floor, control, vendor scheduling etc.
MRP system used to help plan sales, engg, production,
purchasing, etc

No shortage lists of override the production schedules.

Class B
System has MRP, capacity planning shop floor control,
but no vendor scheduling
Used as a production control system
Needs help from shortage list
Inventory higher than need be
12-Apr-16

22

FOR CLASSES OF MRP USERS

Class C

System used for inventory Ordering rather than scheduling

Scheduling by shortage list

Master schedule over loaded

Class D (beginner)

MRP working in the data processing department only

Inventory records are poor
Master schedule, if it exists at all is overstated and

mismanaged
Relies on shortage list & expediting rather than MRP
12-Apr-16

23

ADDITIONAL FUNCTIONS OF MRP II

IT IS AN OPERATIONAL & FINANCIAL SYSTEM
Company wide, Sales, Production, Engineering,
inventories, cash flows
All operating data expressed in money terms

IT IS A SIMULATOR
What if questions
Simulate probable outcomes of alternative production
plans and management decisions.

12-Apr-16

24

SUMMARY

Dependent vs Independent Demand

MRP is useful for planning requirements of
components and parts knowing end item
demand
Major inputs to MRP include Master
Production Schedule, BOM, Inventory and
Lead Times
The MRP logic goes through Explosion,
Offsetting, Netting and Lot sizing
12-Apr-16

25

SUMMARY (Contd)

Major benefits of MRP include improved

planning, lesser inventories, shorter lead
times
However MRP does not integrate cost
functions in different departments
MRPII (Manufacturing Resource Planning)
links the financial functions across the
organization
12-Apr-16

Source: PPT of late Prof. Arun

kanda

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