1

Material Requirement
Planning
Prof. Sanjay Choudhari
Indian Institute of Management
Indore

The McGraw-Hill Companies, Inc.,

Major Operations Activities

Strategic capacity
planning
Sales and Operations
(aggregate) planning

S&OP refer to the process

of keeping demand and
supply in balance.

Master Production
Schedule
Material Requirement
Planning

Order Scheduling

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Hierarchy
Aggregate Production plan for shirts (Forecast + Customer orders )
Months

Jan

Feb

Shirts Productions

980

950

Master Production schedule for shirts

size
Week
Shirts XL R
Shirts L Y
Shirt M G

200

400
100

100
100

200

100

150

100
200

200

MRP
Program
Calculate and schedule all inputs to MPS
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Material Requirements Planning

MRP is a computerized information system to manage
dependent demand inventory and schedule orders
Translates the master production schedule into
requirements for all subassemblies, components, and
raw materials through the MRP explosion
Dependent demand drives MRP

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Demand Characteristics
Clipboard

Top clip (1)

Pivot (1)

Bottom clip (1)

Spring (1)

Rivets (2)
Finished clipboard

Pressboard (1)

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MRP Inputs

Master Production
Schedule (MPS)

3
Inventory
transactions

Inventory
records

Other
sources
of demand

2
MRP
explosion

Bills of
Materials
(BOM)

Engineering
and process
designs

Material
requirements
plan

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Master Production Schedule (MPS)

Details how many end items will be produced within
specified periods of time

It breaks the sales and operations plan into specific product

schedules
Create a prospective MPS and test whether it meets the schedule
with available resources

Sums of quantities must equal sales and operational plan

Production must be allocated efficiently over time
Capacity limitations and bottlenecks may be determined

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Master Production Schedule (MPS)

Jan
1
Shirts XL

Feb
3

150

150
120

Shirts M
Shirt L

200

Aggregate
production plans
for Shirts family

200

670

120
200

200

670

MPS for a Family of Shirts

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Bill of Materials
A record of all components of an item
Shows the parent-component relationship with production
sequence
The usage quantities are derived from engineering and
process design

Five common terms

End items

Intermediate items

Subassemblies

Purchased items

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10

Demand Characteristics
Clipboard

Top clip (1)

Pivot (1)

Bottom clip (1)

Spring (1)

Rivets (2)
Finished clipboard

Pressboard (1)

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11

Product Structure Tree

Clipboard

Pressboard
(1)

Top Clip
(1)

Level 0

Clip Assy
(1)

Bottom Clip
(1)

Rivets
(2)

Pivot

Level 1

Spring
(1)

Level 2

(1)
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12

Inventory Record
Inventory transactions are the basic building blocks of upto-date records
Transactions include releasing new orders, receiving
scheduled receipts, adjusting due dates for scheduled
receipts, withdrawing inventory, canceling orders,
correcting inventory errors, rejecting shipments, and
verifying losses and stock returns
Inventory records divide the future into time periods called
time buckets
Keep track of inventory levels and component
replenishment needs

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13

Inventory Record
The time-phase information contained in the inventory
record consists of:

Gross requirements
Scheduled receipts
Projected on-hand inventory
Planned order receipts
Planned order releases

Projected on-hand
inventory balance
at end of week t

Inventory on
hand at end of
week t1

Scheduled
or planned
receipts in
week t

Gross
requirements
in week t

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14

Material Requirements Planning System

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

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15

Planning Factors for MRP

Planning lead time
For purchased items planning lead time is the time
allowed for receiving a shipment from the supplier
For manufactured the planning lead time consists
of estimates for
Setup

time

Processing
Materials
Waiting

time

handling time between operations

time

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16

Lot Sizing in MRP Programs

Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
Which one to use?
The one that is least costly!

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17

Advantages of MRP
It processes massive amount of information and
presents in a useful and comprehensible form to the
managers.
It helps bring order out of chaos and reduce the workin-process inventories in the system
It serves as a useful tool to keep track of all the
interactions involved in a multistage production
system.

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18

When would MRP work well?

This serves well as a planning tool and is not too good
for control.
MRP will work most effectively if lead times are not
highly variable and if forecasts of finished- item sales
are good enough that a stable master production
schedule can be developed.
MRP will fail if capacity is not properly managed.

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19

Shortcomings of MRP
MRP is fundamentally driven by the assumption that
all required information is known with certainty.
Uncertainties arise due to
Differences between estimated demand and actual demand
Variations in production lead times.
Unreliability in the yields of the processes.

A lot of data needs to be accumulated and updated

regularly and data integrity is vital.
It fails if capacity is not properly managed

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Example of MRP Logic and Product

Structure Tree

20

Given
Giventhe
theproduct
productstructure
structuretree
treefor
forA
Aand
andthe
thelead
leadtime
timeand
and
demand
demandinformation
informationbelow,
below,provide
provideaamaterials
materialsrequirements
requirements
plan
planthat
thatdefines
definesthe
thenumber
numberof
ofunits
unitsof
ofeach
eachcomponent
componentand
and
when
whenthey
theywill
willbe
beneeded
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
Total Unit Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)
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21

First,
First, the
the number
numberof
of units
units of
of A
A are
arescheduled
scheduled
backwards
backwards to
to allow
allowfor
fortheir
theirlead
lead time.
time. So,
So, in
in the
the
materials
materials requirement
requirement plan
plan below,
below,we
wehave
haveto
toplace
place
th
an
an order
orderfor
for50
50 units
units of
of A
A on
on the
the 99th day
day to
to receive
receive
them
them on
on day
day 10.
10.
Day:
A Required
Order Placement

10
50

50

LT = 1 day

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22

Next,
Next,we
weneed
needto
tostart
startscheduling
schedulingthe
thecomponents
componentsthat
thatmake
makeup
up
A.
A. In
Inthe
thecase
caseof
ofcomponent
componentB
Bwe
weneed
need44Bs
Bsfor
foreach
eachA.
A.
Since
Sincewe
weneed
need50
50As,
As,that
thatmeans
means200
200Bs.
Bs. And
Andagain,
again,we
weback
back
the
theschedule
scheduleup
upfor
forthe
thenecessary
necessary22days
daysof
oflead
leadtime.
time.
Day:

A Required
Order Placement
B Required
Order Placement

20

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

20

50
200

10
50

200

Spares
4x50=200

C(2)
E(1)

D(3)

F(2)
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Finally,
Finally,repeating
repeatingthe
theprocess
processfor
forall
allcomponents,
components,we
wehave
havethe
the
final
finalmaterials
materialsrequirements
requirementsplan:
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

20

20

50
200

23

10
50

200
100

55
20

400

55

400

20

200

100
300

300

200
200
200

A
Part D: Day 6

B(4)
D(2)

C(2)
E(1)

D(3)

40 + 15 spares

F(2)
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