Material Requirement Planning (MRP)

MATERIAL REQUIREMENT PLANNING (MRP)
Presented by:
Shweta Jangid Gaurav Jindal Puneet Joshi Bhupesh Kachhwaha Hemant T Kantiwal Dipesh Kapoor Mohd. Waseem Khan Gaurav Uday Khatri Darsh Kumar Khatwani
MRP
Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
Independent and Dependent Demand

Independent Demand
Dependent Demand
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain. Dependent demand is certain.
Dependent Demand
Dependent demand: Demand for items that

are subassemblies or component parts to be used in production of finished goods.
Once the independent demand is known,

the dependent demand can be determined.
Objectives of MRP

Improve customer service

Reduce inventory investment Improve plant operating efficiency Reduction in production and delivery lead times
Material Requirements Planning System
Three major components of MRP system:

Master Production Schedule (MPS) Bills of Materials (BOM) Inventory Status File
Firm orders from known customers
Aggregate product plan
Forecasts of demand from random customers
Engineering design changes
Master production Schedule (MPS)
Inventory transactions
Bill of material file
Material planning (MRP computer program)
Inventory record file
Order Release Requirements Order Rescheduling
Planned Orders (future)
Master Production Schedule (MPS)
Based on a master production schedule, a material requirements planning system: Creates schedules identifying the specific parts and materials required to produce end items

Determines exact unit numbers needed Determines the dates when orders for those materials should be released, based on lead times
Bills of Materials (BOM)
It provides complete product description.

Materials Parts Components
Production sequence
Subassemblies Fractional options
Provides product structure (tree)
Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
Inventory Status File
Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system like

Identification number Quantity on hand Safety stock level Quantity disbursed Procurement lead time of every item
MRP Matrix
Gross Requirement Derived from planned order releases of the parent Actual / estimated demand, in case of final product Schedule Receipts Items on order Scheduled to arrive in the future time period Projected on hand Current inventory, or anticipated inventory at the end of period
Projected on-hand Inventory at end of period t
Inventory onhand at end of period t - 1
Scheduled / planned receipts in period t
Gross requirements in period t
MRP Matrix
Net requirements
Actual quantity to produce based on projected on hand and on-order quantity Quantity, when orders need to be received Consider lot sizing rule: When order need to be placed to receive on time Consider lead time
Planned Order Receipts

Planned Order Release

Lot-Sizing in MRP
Lot-size is the quantity ordered/produced at one time Large lots are preferred because:
Changeovers cost less and capacity greater Annual cost of purchase orders less Price breaks and transportation breaks can be utilized
Small lots are preferred because:
Lower inventory carrying cost Reduced risk of obsolescence Shorter cycle time to produce customer order
EXAMPLE 1
MRP Example X A(2) C(3) C(2) B(1) D(5)

Item X A B C D On-Hand 50 75 25 10 20 Lead Time (Days) 2 3 1 2 2
Requirements include 95 units (80 firm orders and 15 forecast) of X on 10th day.
X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20
A(2)
It takes 2 As for each X
Day: Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release
10 95 50 45 45
50 50
50
50
50
50
50
50
50
45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20
15
45 10 10 10 10 10 35 35 40
20 40
40 40 100
35
20 20
20
20
20
20
20 80 80
80
A(2)
B(1)
It takes 1 B for each X
10 95 50 45 45
50 50
50
50
50
50
50
50
50
45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20
15
45 10 10 10 10 10 35 35 40
20 40
40 40 100
35
20 20
20
20
20
20
20 80 80
80
A(2)
B(1)
C(3)
It takes 3 Cs for each A
10 95 50 45 45
50 50
50
50
50
50
50
50
50
45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20
15
45 10 10 10 10 10 35 35 40
20 40
40 40 100
35
20 20
20
20
20
20
20 80 80
80
A(2)
B(1)
C(3)
C(2)
It takes 2 Cs for each B
10 95 50 45 45
50 50
50
50
50
50
50
50
50
45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20
15
45 10 10 10 10 10 35 35 40
20 40
40 40 100
35
20 20
20
20
20
20
20 80 80
80
A(2)
B(1)
C(3)
C(2)
D(5)
It takes 5 Ds for each B
10 95 50 45 45
50 50
50
50
50
50
50
50
50
45 90 75 75 75 75 75 75 75 75 15 15 45 25 25 25 25 25 25 25 25 20 20
15
45 10 10 10 10 10 35 35 40
20 40
40 40 100
35
20 20
20
20
20
20
20 80 80
80
EXAMPLE 2
Product Structure for Clipboard
Product Structure Record Clipboard Level 0
Pressboa rd (1)
Clip Assembly (1)
Rivet s (2)
Level 1
Top Clip (1)
Bottom Clip (1)
Piv ot (1)
Sprin g (1)
Level 2
EXAMPLE 3
Product Structure for Bicycle
Bicycle(1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assy (1) P/N 1002 Frame (1) P/N 1004
Wheels (2) P/N 1003
EXAMPLE 4
Material Requirements Planning

To produce an end item A component B/unit of end item is needed. It takes two weeks to produce a batch of component B.

Stock in hand 170 units 50 unites will be completed at the beginning of week 2
Average Weekly Demand 100 units Set-up Cost $90 Inventory Holding Cost 20%/unit/week
Material Requirements Planning

Week
1 Gross Requirement On-hand inventory Scheduled receipts Net requirements Planned production 170 150 20 2 50 20 50 50 100 0 150 200 100 0 80 20 160 3 70 4 100 5 0 6 150 7 200 8 100 9 0 10 80 11 20 12 160
LOT-FOR-LOT Method
Week
1 Gross Requirement On-hand inventory Scheduled receipts Net requirements Planned production 50 100 170 150 20 2 50 20 50 3 70 0 50 50 0 4 100 0 100 100 150 0 200 5 0 0 6 150 0 150 150 100 7 200 0 200 200 0 8 100 0 100 100 80 0 20 9 0 0 10 80 0 80 80 160 11 20 0 20 20 0 12 160 0 160 160 0
LOT-FOR-LOT Method
Set-up cost
= 8 set-ups * $90 per set-up = $720
Holding cost
= 20 units in week 1 * 0.2 + 20 units in week 2 * 0.2 = $8
Total cost for the 12-week period

= $720 + $8 = $728
Economic Order Quantity (EOQ)

Average Weekly Demand (R) 100 units Set-up Cost (cp) $90 Inventory Holding Cost (ch) 20%/unit/week EOQ = 2Rcp ch = 20*100*90 0.2 300 units

Week
1 Gross Requirement On-hand inventory Scheduled receipts Net requirements Planned production 300 0 170 150 20 2 50 20 50 3 70 250 300 50 0 100 0 0 300 150 0 4 100 150 5 0 150 6 150 0 7 200 100 300 200 0 100 300 0 0 8 100 0 9 0 0 10 80 220 300 80 0 20 0 160 0 11 20 200 12 160 40
Set-up cost
= 3 * $90 = $270
Holding cost
= 1150 * $0.2 = $230
Total incremental cost

= $270 + $230 = $500
EXAMPLE 5
Product structure for making a truck
(A) Transmission(1)
(B) Gear Box (1)
(C) Gear (1)
(D) Forging Blank (5)
(X) Truck (1)
(A) Transmission (1)

Item
Truck
(B) Gear Box (1)

On-Hand
10 20 24 18
(C) Gear (1)

Lead Time (Weeks)
1 2 1 1
(D) Forging Blank (5)
Transmission Gear Box Gear
Forging Blank 40 2 Suppose we are to produce 40 trucks. What are the net requirements for each component?
Lead Low Item Time On Level Identif. WEEK Weeks hand Code
10
Gross Requirements Scheduled Receipts Projected on Hand 10 10 Net Requirement
50
10 10 10 10 10 10 10
Planned Order Receipts

Planned Order Releases
40 40 40 40 20 20 20 20 20 20 20 20
20
Gross Requirements Scheduled Receipts Projected on Hand 20 20 20 Net Requirement Planned Order Receipts Planned Order Releases
Lead Low Item Time On Level WEEK Weeks hand Code Identif.
24
Gross Requirements
Scheduled Receipts Projected on Hand 24 24 24 Net Requirement Planned Order Receipts Planned Order Releases
40
24 24 24 16 16 16 40 18 18 22 22
18
Gross Requirements
Scheduled Receipts
Projected on Hand 18 18 18 Net Requirement Planned Order Receipts
Planned Order Releases
22
Low Item Time On Level Identif. WEEK Weeks hand Code
Lead
40
Gross Requirements Scheduled Receipts
200
Projected on Hand 40 40 40 40 Net Requirement Planned Order Receipts Planned Order Releases 160
160 160
EOQ example
Setup cost, S = $100 Unit price, C = $50 Holding costs, HR = .24 per annum HP = .02 per period Annual demand, D = 200 Q = (2DS / CHR)1/2 = 58
Period Net rqmts. Planned orders 1 35 58 2 10 3 4 40 58 5 6 20 7 5 8 10 58 9 30 10
MRP Example:-
MRP Example:-
Speaker Kits, Inc.,packages
Level 0
Product structure for Awesome(A) A C(3) Std. 12Speaker kit w/ amp-booster F(2) Std. 12 Speaker booster assembly
D(2) 12 Speaker Amp-booster
B(2) Std. 12 Speaker Kit
E(2)
E(2)
D(2) Packing box and installation kit of wire, bolts and screws
G(1)
12 Speaker
Start production of D 1 week
Must have D and E completed her so production can begin D on B B E
2 weeks
2 weeks to produce
2 weeks 2 weeks G 3 weeks 1 week D Time in weeks
1 week E 1 week
C
Item A B C D E F G
Inventory on hand 10 15 20 10 10 5 0
Net Material Requirement Plan for Product A

Lead Low- Item Time On Level Identi(weeks) Hand Code fication
1 10 0 A
Week
Gross Requirement Scheduled Receips Projected on Hand 10 Net Requirement Planned Order Receipts Planned Order Releases
2 3 4 5 6
8
50
10 10 10 10 10 10 10 10 40 40 A 40
15
80 15 15 15 15 15 15 15 65 65 65
Lead On Low- Item Time Han Level Identi(weeks) d Code fication

1 20 1 C
Week
1 2
3 4
Gross Requirement Scheduled Receips Projected on Hand 20 20 20 Net Requirement Planned Order Receipts Planned Order Releases
6 7 8 A 120
20 20 100 100
20 20
20
100
10
Gross Requirement Scheduled Receips Projected on Hand 10 10 10 Net Requirement Planned Order Receipts Planned Order Releases
B 130 C 200 10 10 10 120 200 120 200 120 200
LowLead On Leve Time Han l (weeks) d Cod

3 5 2
Item Identificatio n
F
Week
1
5
2
5
3 4
5 5
5
5
6
C 200 5 195 195
195
10
F 390 B 130 Gross Requirement Scheduled Receips Projected on Hand 10 10 10 10 Net Requirement 380 130 Planned Order Receipts 380 130 Planned Order Releases 380 130 F 195 Gross Requirement Scheduled Receips Projected on Hand 0 Net Requirement 195 Planned Order Receipts 195 Planned Order Releases 195
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 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)
A B(4) D(2) E(1) D(3) C(2) F(2)
This is what we want to develop, the final materials requirements plan. Lets see how we got to this
50
A LT=1 B LT=2 C LT=1 D LT=3 E LT=4 F LT=1
Day: Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement
9 50 200 100
10 50
20 20 200 100 300
55 55 20 200 400 300 20
400 200
200 200
A
Part D: Day 6
B(4) D(2) E(1) D(3)
C(2) F(2)
40 + 15 spares
The McGraw-Hill Companies, Inc., 2001
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 on the 9th day to receive them in the 10th day.
Day: A Required Order Placem ent 1 2 3 4 5 6 7 8 9 50 10 50
LT = 1 day
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.
Day: A B R e q u ire d O rd e r P la c e m e n t R e q u ire d O rd e r P la c e m e n t 20 200 20 50 200 1 2 3 4 5 6 7 8 9 10 50
LT = 2 A B(4) D(2) E(1) D(3) C(2) F(2)

4x50=200
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.
Day: A B R e q u ire d O rd e r P la c e m e n t R e q u ire d O rd e r P la c e m e n t 20 200 20 50 200 1 2 3 4 5 6 7 8 9 10 50
LT = 2 A B(4) D(2) E(1) D(3) C(2) F(2)
Spares
4x50=200
Finally, repeating the process for all components, we have the final materials requirements plan:
Day: A LT=1 B LT=2 C LT=1 D LT=3 E LT=4 F LT=1 Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement Required Order Placement 1 2 3 4 5 6 7 8 9 50 200 100 55 55 20 200 200 200 400 300 20 200 400 100 300
54
10 50
20 20 200
A
2x50=100
Part D: Day 6
40 + 15 spares
B(4) D(2) E(1) D(3)
C(2)
LT = 1
F(2)
The McGraw-Hill Companies, Inc., 2001
THANKS

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MATERIAL REQUIREMENT PLANNING (MRP)

Independent and Dependent Demand

Independent demand is uncertain. Dependent demand is certain.

Dependent demand: Demand for items that

Once the independent demand is known,

Improve customer service

Material Requirements Planning System

Three major components of MRP system:

Firm orders from known customers

Aggregate product plan

Forecasts of demand from random customers

Engineering design changes

Master production Schedule (MPS)

Bill of material file

Material planning (MRP computer program)

Inventory record file

Order Release Requirements Order Rescheduling

Planned Orders (future)

Master Production Schedule (MPS)

Bills of Materials (BOM)

It provides complete product description.

Materials Parts Components

Provides product structure (tree)

Inventory Status File

Projected on-hand Inventory at end of period t

Inventory onhand at end of period t - 1

Scheduled / planned receipts in period t

Gross requirements in period t

Planned Order Receipts

Planned Order Release

Small lots are preferred because:

MRP Example X A(2) C(3) C(2) B(1) D(5)

It takes 2 As for each X

It takes 1 B for each X

It takes 3 Cs for each A

It takes 2 Cs for each B

It takes 5 Ds for each B

Product Structure for Clipboard

Product Structure Record Clipboard Level 0

Clip Assembly (1)

Top Clip (1)

Bottom Clip (1)

Product Structure for Bicycle

Wheels (2) P/N 1003

Material Requirements Planning

Material Requirements Planning

Total cost for the 12-week period

Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ)

Total incremental cost

Product structure for making a truck

(B) Gear Box (1)

(C) Gear (1)

(D) Forging Blank (5)

(X) Truck (1)

(A) Transmission (1)

(B) Gear Box (1)

(C) Gear (1)

(D) Forging Blank (5)

Transmission Gear Box Gear

Gross Requirements Scheduled Receipts Projected on Hand 10 10 Net Requirement

Planned Order Receipts