1. 1 The MRP Heuristic  MRP stands for Materials Requirement Planning  It is a widely used approach for production planning and scheduling in industry  It is the approach embedded in many commercially available software applications

2. 2 MRP Assumptions  No capacity constraints  A task initiated in period t completes in period t +  i  Product structure is typically assumed to be of the assembly type

3. 3 Formulation

4. 4 The MRP Solution Approach  Solve the lot sizing problem for each item independently starting with the end-items (finished products) and working your way down the bill-of- material (BOM)  The selected production quantities for an item, determine the demand for the items that are its immediate predecessors (its input items)

5. 5 Solving the Lot Sizing Problem  Solve the problem for each item optimally (e.g., using the Wagner-Whittin algorithm)  Solve the problem approximately using a heuristic (e.g., using a fixed order quantity, a fixed order period, or a lot for lot heuristic)

6. 6 Example

7. 7 Example (Continued…)

8. 8 MRP Terminology  Netting: determining net requirements against projected inventory for each period  Lot Sizing: determining order quantities  Time Phasing: determining when production orders should be initiated, given the production lead time  BOM Explosion: determining gross requirements for components

9. 9 MRP Terminology (Continued…)  Master Production Schedule (MPS): due dates and quantities for all top level items (finished products)  Bill of Material (BOM): the items that goes into each sub-assembly and into the finished product  Projected Inventory: (on hand plus scheduled receipts) for all items  Planned Lead times: production lead times  Level code: a number assigned to an item depending on the lowest position in the BOM where it can be found

10. 10 The Netting Procedure  D t : Gross requirements in period t for some item  S t : Quantity currently scheduled to complete in period t (i.e., a scheduled receipt)  I t : projected on-hand inventory for the end of period t  N t : Net requirement for period t  Q t : Planned orders in period t (production quantity initiated in period t )

11. 11 The Basic Steps Step 1: Let t = 1 Step 2: I t = I t- 1 - D t Step 3: If I t  0, then let t = t + 1 and go back to step 2, otherwise, let N t = - I t and set N t’ = D t’ for all t ’ > t Step 4: Use a lot sizing method to determine Q t for t =1,…, T, taking into account the production leadtime Step 5: Use the production quantities Q t in determining the gross requirements for all items that are used by the item under current consideration

12. 12 Example - The Bill of Materials A 100 (2) 200 300 400 B 500 300 100 600 300 400

13. 13 Example – The Input Data Part Number Current On- Hand Scheduled ReceiptsLot Sizing Rule Lead Time DueQuantity A20FOP, 2 weeks2 weeks B40FOP, 2 weeks2 weeks 10040Lot-for Lot2 weeks 300502100Lot-for-Lot1 week 50040Lot-for-Lot4 weeks

14. 14 Example – Part A Part A12345678 Gross requirements1520501030 Scheduled receipts10 100 Adjusted SRs20100 Projected on- hand 2055554515-15--- Net requirements1530 Planned order receipts4530 Planned order releases4530

15. 15 Example – Part B Part B12345678 Gross requirements10151020 15 Scheduled receipts Adjusted SRs Projected on- hand 40--- Net requirements Planned order receipts Planned order releases

16. 16 Example – Part B Part B12345678 Gross requirements10151020 15 Scheduled receipts Adjusted SRs Projected on- hand 4030155-15--- Net requirements152015 Planned order receipts353015 Planned order releases353015

17. 17 Example – Part 500 Part 50012345678 Gross requirements353015 Scheduled receipts Adjusted SRs Projected on- hand 40 55-25--- Net requirements2515 Planned order receipts2515 Planned order releases25*15

18. 18 Example – Part 500 Part 50012345678 Gross requirements Scheduled receipts Adjusted SRs Projected on- hand 40--- Net requirements Planned order receipts Planned order releases

19. 19 Example – Part 100 Part 10012345678 Gross requirements from A Gross requirements from 500 Gross Requirments 25 15 90 60 Scheduled receipts Adjusted SRs Projected on- hand 401500-90--- Net requirements90---60 Planned order receipts9060 Planned order releases9060

20. 20 Limitations of MRP  Capacity-insensitive  Assumes fixed lead times  Incentive to inflate lead times

21. 21 The MRP Planning Loop 1. Fixed lead times lead to poor due date performance 2. Management decides to increase lead time 3. Longer lead time requires longer forecasting horizon 4. Longer forecasting horizon creates errors in estimating demand 5. Errors in estimating demand lead to poor due date performance. 6. Management decides to increase lead time

22. 22 Enhancements to MRP  MRP II: The functionality of materials requirement planning (MRP) + capacity requirement planning (CRP)  APS: Advanced Planning Systems (software applications with the ability to solve the underlying optimization problem)  ERP: Enterprise Requirement Planning (MRP or APS capabilities integrated into an enterprise-wide information system)