1. MRP

2. Question: how do firms actually organize things to turn materials into finished products?
MRP (Material Requirements Planning)
- determines number of parts, components and materials to produce each end item
- determines when each component, part and material is needed to finish the end items on schedule

3. Material Requirements Planning
Manufacturing Resource Planning (MRP II)
Enterprise Resource Planning

4. Products are combinations of parts…
Example: Bicycle
Handle bars (1)
Metal Frame (1)
Wheels (2)

5. MRP Systems: Materials Requirements Planning
Bill of Materials (product structure tree, schematic, product flow diagram)
Relationships with suppliers (we can manufacture some of the parts, others we can get from suppliers)
Master Production Schedule is the key input

6. Summary: How does MRP work?
Material Requirement Planning
Production
Assembly
Customer
Production
Assembly
Production
Units are PUSHED forward according to the plan!

7. How many D’s we need in order to produce 50 A’s?
Let’s look at an example BOM... A
Question:
How many D’s we need in order to produce 50 A’s?
B(2)
C(1)
D(3)
E(3)
D(1)

8. We need information on delivery times!
How do we manage order release?
We need information on delivery times!
Parts-Product
Process Lead Time A 10 B 15 C D E

9. When do we start producing/ordering each part?
Let’s look at an example BOM... A
(10)
Question:
When do we start producing/ordering each part?
B(2)
C(1)
(15)
(10)
(15)
D(3)
E(3)
D(1)
(15)
(10)

10. Delivery date for final product
Let’s assume that we need 50 units of A…
Delivery date for final product
5 days
Parts-Products A B C D E

11. Start assembly for 50 units of A
Let’s assume that we need 50 units of A…
Start assembly for 50 units of A
Parts-Products A B C D E

12. Start assembly for 100 units of B
Let’s assume that we need 50 units of A…
Start assembly for 100 units of B
Parts-Products A B C D E

13. Start assembly for 50 units of C
Let’s assume that we need 50 units of A…
Start assembly for 50 units of C
Parts-Products A B C D E

14. Order 300 units of D for B’s process
Let’s assume that we need 50 units of A…
Order 300 units of D for B’s process
Parts-Products A B C D E

15. Order 50 units of D for C’s assembly
Let’s assume that we need 50 units of A…
Order 50 units of D for C’s assembly
Parts-Products A B C D E

16. Order 50 units of E for C’s assembly
Let’s assume that we need 50 units of A…
Order 50 units of E for C’s assembly
Parts-Products A B C D E

17. Lot Sizing in MRP Systems
Lot-for-lot (L4L):
Produce to cover next period
EOQ:
Apply the EOQ approximation for yearly demand
Least Unit Cost:
Minimize total cost (order + carry) per unit
These are all approximate methods, none is guaranteed to be optimal. We can apply all of them and find the least-cost one to implement.

18. Example Cost per item: $10 Order/setup cost: $47
Inventory carrying cost/month 2%
Starting inventory: 50
Production lead time 1 month
Monthly requirements
For the solution, see file mrp_methods.pdf