1. Materials Requirements Planning
CHAPTER 18

2. Learning Objectives Describe what MRP is and where it is best applied.
Understand the source of the information used by the system.
Demonstrate how to do an MRP “explosion.”
Explain how order quantities are calculated in MRP systems.

3. Secondary reports Primary reports Exception reports Planning reports
Firm orders
from known
customers
Forecasts
of demand
from random
Aggregate
product
plan
Bill of
material
file
Engineering
design
changes
Inventory
record file
transactions
Master production
Schedule (MPS)
Material
planning
(MRP
computer
program)
Primary reports
Secondary reports
Planned order schedule for inventory and production control
Exception reports
Planning reports
Reports for performance control 12 12

4. Master Production Schedule (MPS)
Time-phased plan specifying how many and when the firm plans to build each end item
Aggregate Plan
(Product Groups)
MPS
(Specific End Items) 8 8

5. The Aggregate Plan and the Master Production Schedule for Mattresses
Master production schedule (MPS): the time-phased plan specifying how many and when the firm plans to build each end item
LO 2

6. Time Fences Frozen: anything from no changes to only minor changes
Moderately firm: allow changes so long as parts are available
Flexible: allow almost any variations
LO 2

7. Demand for Products Customers who have placed specific orders
Generated by sales personnel
Orders carry promised delivery dates
No forecasting of these orders
Forecasted demand
Normal independent-demand sales
Demand for parts and components
Spares and repair
LO 2

8. Bill of Materials
Bill of materials (BOM): contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created
One of the three main inputs to the MRP program
Often called the product structure file or product tree because it shows how a product is put together
LO 2

9. Bill of Materials (Product Structure Tree) for Product A

10. Level Coding of Bills of Materials
LO 2

11. Inventory Records File
Each inventory item carried as a separate file
Status according to “time buckets”
Pegging
Identify each parent item that created demand 14 14

12. MRP Explosion Process
The requirements for end items are retrieved from the master schedule
These are referred to as “gross requirements” by the MRP program
Uses on-hand balance with schedule of orders to calculate the “net requirements”
Using net requirements, it calculates when orders should be received to meet these requirements
LO 3

13. Additional MRP Scheduling Terminology
Gross Requirements
Scheduled receipts
Projected available balance
Net requirements
Planned order receipt
Planned order release 19 19

14. Primary MRP Reports Planned orders to be released at a future time
Order release notices to execute the planned orders
Changes in due dates of open orders due to rescheduling
Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule
Inventory status data 15 15

15. Secondary MRP Reports
Planning reports, for example, forecasting inventory requirements over a period of time
Performance reports used to determine agreement between actual and programmed usage and costs
Exception reports used to point out serious discrepancies, such as late or overdue orders 15 15

16. Lot Sizing in MRP Systems
Determination of lot sizes in an MRP system is a complicated and difficult problem
Lot sizes: the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule
Will look at four
Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
LO 4

17. Lot-for-Lot Sets planned orders to exactly match the net requirements
Produces exactly what is needed each week with none carried over into future periods
Minimizes carrying cost
Does not take into account setup costs or capacity limitations.
LO 4

18. Economic Order Quantity
Calculate reorder quantity based on EOQ
EOQ was not designed for a system with discrete time periods such as MRP
The lot sizes generated by EOQ do not always cover the entire number of periods
LO 4

19. Least Total Cost
Least total cost method (LTC): a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal
Influenced by the length of the planning horizon
LO 4

20. Least Unit Cost
Least unit cost method: a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost
LO 4

21. MRP Example A(2) B(1) D(5) C(2) X C(3)
Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10 18 18

22. X
A(2)
It takes 2 A’s for each X 21 21

23. X
A(2)
B(1)
It takes 1 B for each X 21 21

24. X
A(2)
B(1)
C(3)
It takes 3 C’s for each A 21 21

25. X
A(2)
B(1)
C(3)
C(2)
It takes 2 C’s for each B 21 21

26. X
A(2)
B(1)
C(3)
C(2)
D(5)
It takes 5 D’s for each B 21 21

27. Closed Loop MRP Yes Production Planning Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning No
Feedback
Realistic?
Feedback
Execute:
Capacity Plans
Material Plans
Yes 22 22

28. Any Questions?