1. Material Requirements Planning (MRP)
and ERP 14
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
© 2014 Pearson Education, Inc.

2. Outline Dependent Demand Dependent Inventory Model Requirements
MRP Structure
Lot Size Techniques

3. Depend demand

4. Dependent Demand
The demand for one item is related to the demand for another item
Given a quantity for the end item, the demand for all parts and components can be calculated
In general, used whenever a schedule can be established for an item
MRP is the common technique

5. Independent demand is uncertain. Dependent demand is certain.
EOQ
Independent Demand
(final product)
Product A
Part B(4)
Part C(2)
Material D(2)
Material E(1)
Material D(3)
Material F(2)
Dependent Demand (Components)
MRP
Independent demand is uncertain. Dependent demand is certain.

6. Dependent inventory model requirements
MPS
BOM
Inventory Availability
Phase Orders Outstanding
Lead time

7. Dependent Inventory Model Requirements
Effective use of dependent demand inventory models requires the following
Master production schedule (MPS)
Specifications or bill of material (BOM)
Inventory availability
Purchase orders outstanding
Lead times

8. Master Production Schedule (MPS)
Specifies what is to be made and when, not a forecast of demand
MPS is established in terms of specific products
The MPS is quite often fixed or frozen in the near term part of the plan
TABLE 14.1
Master Production Schedule for Chef John’s Buffalo Chicken
Mac & Cheese
GROSS REQUIREMENTS FOR CHEF JOHN’S BUFFALO MAC & CHEESE
Day 6 7 8 9 10 11 12 13 14
And so on
Quantity
450
200
350
525
235
375

9. Bills of Material (BOM)
List of components, ingredients, and materials needed to make product
Provides product structure
Items above given level are called parents
Items below given level are called components or children

10. BOM Example
Question:
If we want to produce 50 chairs, how many back supports do we need?

11. BOM Example
Question:
If we want to produce 50 chairs, how many cross bars do we need?

12. Accurate Inventory Records
Accurate inventory records are absolutely required for MRP
Generally MRP systems require more than 99% accuracy

13. Accurate Inventory Records
Product A
B (2)
C (3)
D (2) E
D (4) F
G (3) D
Question:
If we want to produce 10 A, how many D do we need?

14. Product A B (2) C (3) Question: we want to produce 10 A,F
G (3) D
Question:
we want to produce 10 A,
Inventory of B is 3,
Inventory of F is 10,
how many D do we need?

15. Purchase Orders Outstanding
What is on order
Outstanding purchase orders must accurately reflect quantities and scheduled receipts

16. Lead Times for Components
The time required to purchase, produce, or assemble an item
For production – the sum of the move, setup, and assembly or run times
For purchased items – the time between the recognition of a need and when its available for production

17. Must have D and E completed here so production can begin on B
Lead Time
Product A B C D
E(2)
E(3) F G
Must have D and E completed here so production can begin on B
Start production of D
| | | | | | | |
Time in weeks
2 weeks
1 week D E
1 week
2 weeks to produce B C E
1 week A F
2 weeks
3 weeks
2 weeks D G
1 week

18. Lead Time Cumulative Lead Time: the longest lead time path in the BOM
1 week (A) + 2 weeks (B) + 3 weeks (F) = 6 weeks
1 week (A) + 1 weeks (C) = 2 weeks
1 week (A) + 3 weeks (D) + 2 weeks (E) = 6 weeks
So, cumulative lead time is 6 weeks.

19. Discussion Question
What is the cumulative lead time?

20. MPS structure

21. MRP Structure Figure 14.4 Data Files Output Reports BOM Master
Purchasing data
BOM
Lead times
(Item master file)
Inventory data
Output Reports
MRP by period report
MRP by date report
Planned order report
Purchase advice
Exception reports
Order early or late or not needed
Order quantity too small or too large
Master
production schedule
Material requirement planning programs (computer and software)

22. MRP Structure

23. MRP Structure
Gross Requirements: total amount of an item that is required
Net Requirements: amount needed in a time period
Planned Order Receipt: amount of an item planned to arrive in a time period
Planned Order Release: amount of an item planned to be ordered in time period
Net
Requirements =
Gross _
Scheduled
Receipts
Available
Inventory

24. Lot sizing techniques
Lot-for-Lot
EOQ

25. Lot-Sizing Techniques
Lot-sizing decision: how much to order
Techniques to determine lot sizes
Lot-for-lot techniques
Economic order quantity (EOQ)

26. Lot-sizing Techniques
Process all BOM items level by level following a top-down approach.
For each item at each level,
compute the gross requirement for each period
calculate the net requirement for each time period
apply a lot-sizing technique to determine the order quantities
offset each order for the lead time to yield a time-phased planned order release (POR).
Net
Requirements =
Gross _
Scheduled
Receipts
Available
Inventory

27. Lot-Sizing Techniques
Lot-for-lot techniques order just what is required for production based on net requirements
May not always be feasible
If setup costs are high, lot-for-lot can be expensive
When frequent orders are economical and just-in-time (JIT) inventory techniques implemented, Lot-for-Lot can be very efficient

28. Lot-for-Lot (L4L)
Example 14.1: Use L4L to fill out the following MRP table
Item: X 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
(LT = 1 week) 35 30 40 10 40 30 30 55 30 40 10 55 30 40 10 55

29. Lot-for-Lot (L4L)
Example 14.2: Use L4L to fill out the following MRP table
Item: X 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts 90
Projected on hand
Net requirements
Planned order receipts
Planned order releases
(LT = 1 week) 35 50 50 40 30 20 30 55 30 20 55 30 20 55

30. Lot-for-Lot (L4L) Example 14.3:
Children's scissors are made from four items:
two identical blades – two weeks lead time
one screw – one week lead time
one nut – one week lead time
The assembly process for one gross of scissors takes one week.
(1) Construct a product structure tree for the scissors.
Screw
Nut
Blade(2)
Level 1
Scissors
Level 0

31. A order of 144 scissors in week 7
No inventory on hand
Level 0 – Scissors: lead time (LT) = 1 week 1 2 3 4 5 6 7 8 9
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
144
432
144
432
144
432
144
432

32. Planned order release: 144 scissors @ week 6
Check the table for Scissor
Same as the row “Planned order release” of the upper level table
Level 1 – Blade:
lead time (LT) = 2 weeks 1 2 3 4 5 6 7 8 9
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
288
864 72
360 – 288 = 72
360
792
864 – 72 = 792
360
360
360
360
360 72
Project on hand > Requirements,
So, Net requirements =0
792
792

33. Planned order release: 144 scissors @ week 6
Check the table for Scissor
Same as the row “Planned order release” of the upper level table
Level 1 – Screw:
lead time (LT) = 1 week 1 2 3 4 5 6 7 8 9
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
144
432
Project on hand > Requirements,
So, Net requirements =0
600
600
600
600
600
600
456
600 – 144 = 456
456
456 – 432 = 24 24

34. Planned order release: 144 scissors @ week 6
Check the table for Scissor
Level 1 – Nut: lead time (LT) = 1 week 1 2 3 4 5 6 7 8 9
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
144
432
100
100
100
100
100
100 44
432 44
432 44
432

35. EX 1 in class Inventory Availability Master Schedule Bill of Materials
Item
Quantity in Inv. A 80 B 45 C
105 D E
650
Master Schedule
Week 1 2 3 4 5 6 7 8 9 10
Quantity
125
150
175
Develop the MRP tables for each items by using L4L rule.
Bill of Materials
LEVEL
PART #
ITEM
QUANTITY
LEAD TIME
11001 A 1
4 weeks
21001 B
3 weeks
21002 C 2
2 week
31001 D
1 week
31002 E

36. Lot-Sizing Techniques
Lot-sizing decision: how much to order
Economic order quantity (EOQ)
EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand

37. Economic Order Quantity (EOQ)
Example 14.4: Use EOQ=73 to fill out the following MRP table 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases 43
73 – 30 = 43 3
43 – 40 = 3 26
66 – 40 =26 3 66
73 – 7 = 66 69 69 39 30 7 4
30 – 26 = 4 16 73
Net requirement in 2nd week is not zero, so, a planned order should be receipted. 73 73 73 73

38. EX 2 in class Develop the following MRP table by using EOQ = 57.
Beginning inventory = 40. Lead time = 1 week 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 30 40 70 20 80 50
Scheduled receipts
Projected on-hand
Net requirements
Planned order receipts
planned order release

39. Example 14.5
Construct a product tree diagram and develop a material requirements plan (MRP) that will yield 400 units of product P at the start of week 7
Item
Parent
Quantity for
1 of Parent
Currently On-Hand
Scheduled Rcpt (in wk)
Lead
Time
Order Quantity P - 1
lot-for-lot A
100 B
Multiples of 450 C
A,B
1,2 90
100 (wk 2) 2
Multiples of 600 D 50
80 (wk 2) P
A (1)
B (1)
C (1)
C (2)
D (2)
Level 0
Level 1
Level 2
Item P 1 2 3 4 5 6 7
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
400
400
400
400

40. Item
Parent
Quantity for
1 of Parent
Currently On-Hand
Scheduled Rcpt (in wk)
Lead
Time
Order Quantity P - 1
lot-for-lot A
100 B
Multiple of 450 C
A,B
1,2 90
100 (wk 2) 2
Multiples of 600 D 50
80 (wk 2) P
A (1)
B (1)
C (1)
C (2)
D (2)
Level 0
Level 1
Level 2
Item A 1 2 3 4 5 6 7
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
400
100
100
100
100
100
100
300
300
300

41. Item B 400 50 400 450 450 1 2 3 4 5 6 7 Gross requirements
Parent
Quantity for
1 of Parent
Currently On-Hand
Scheduled Rcpt (in wk)
Lead
Time
Order Quantity P - 1
lot-for-lot A
100 B
Multiples of 450 C
A,B
1,2 90
100 (wk 2) 2
Multiples of 600 D 50
80 (wk 2) P
A (1)
B (1)
C (1)
C (2)
D (2)
Level 0
Level 1
Level 2
Item B 1 2 3 4 5 6 7
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
400 50
400
450
450

42. From the last row of table for item A: 300 @ week 5
Parent
Quantity for
1 of Parent
Currently On-Hand
Scheduled Rcpt (in wk)
Lead
Time
Order Quantity P - 1
lot-for-lot A
100 B
Multiples of 450 C
A,B
1,2 90
100 (wk 2) 2
Multiples of 600 D 50
80 (wk 2) P
A (1)
B (1)
C (1)
C (2)
D (2)
Level 0
Level 1
Level 2
From the last row of table for item A: week 5
From the last row of table for item B: 450*2 = week 5
450*2+300 = 1200
Item C 1 2 3 4 5 6 7
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
1200
100 90 90
190
190
190
190
1010
1200
1200
Since 1010 > 600, Planned order receipt = 600*2 = 1200

43. Item
Parent
Quantity for
1 of Parent
Currently On-Hand
Scheduled Rcpt (in wk)
Lead
Time
Order Quantity P - 1
lot-for-lot A
100 B
Multiples of 450 C
A,B
1,2 90
100 (wk 2) 2
Multiples of 600 D 50
80 (wk 2) P
A (1)
B (1)
C (1)
C (2)
D (2)
Level 0
Level 1
Level 2
450*2 = 900
Item D 1 2 3 4 5 6 7
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
900 80 50 50
130
130
130
770
770
770

44. EX3 in class
Develop a material requirements plan for end item P and its components. One hundred units of P are needed at the start of each of weeks 4 and 8
Item
Lead Time
Quantity on Hand
Scheduled Receipts
Order Quantity P 1 20
Lot-for-lot A
100 B C D F
200
week 1
400

45. Example 14.6 Develop a MRP for Item C by using L4L technique Item A
Inventory Availability
Develop a MRP for Item C by using L4L technique
Item
On Hand Inventory
Scheduled Receipts
Lead Time A
100 week 2) 1 B
100 2 C 50
150 3) H J K
50 week 2) A H
Master Schedule B
C(2) J
K(2) C
Period 8 9 10 11 12 A
100 50
150 H
C(2)
1st final product
See “Master Schedule”
See “Scheduled Receipts”
Item A 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
100 50
150
100
100
100
100
100
100
100 50
150 50
150 50
150

46. Inventory AvailabilityH
Item
On Hand Inventory
Scheduled Receipts
Lead Time A
100 WK 2) 1 B
100 2 C 50
150 H J K
50 WK 2) B
C(2) J
K(2) C
C(2)
Master Schedule
Period 8 9 10 11 12 A
100 50
150 H
2nd final product
See “Master Schedule”
Item H 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
100 50
100 50
100 50
100 50

47. Inventory AvailabilityH
Item
On Hand Inventory
Scheduled Receipts
Lead Time A
100 week 2) 1 B
100 2 C 50
150 3) H J K
50 week 2) B
C(2) J
K(2) C
C(2)
Master Schedule
Period 8 9 10 11 12 A
100 50
150 H
See “Planned order release” in upper level item “H” & Quantity relationship = 1：2
See “Inventory Availability”
Item K 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
200
100 50
100
100
150
150
150
150
150
150 50
100 50
100 50
100

48. Inventory AvailabilityH
Item
On Hand Inventory
Scheduled Receipts
Lead Time A
100 wk 2) 1 B
100 2 C 50
150 3) H J K
50 wk 2) B
C(2) J
K(2) C
C(2)
Path A – C (2): see last row of Item “A”
50*2 = Week 9
150*2 = Week 11
Path H – K(2) – C(2 ): see last row of Item “K”
50*2 = Week 6
100*2 = Week 8
Master Schedule
Period 8 9 10 11 12 A
100 50
150 H
Path H – C: see last row of Item “H”
Week 8
Week 10
See “Inventory Availability”
Item C 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
100
100 50
300
150 50 50 50
200
200
200
100
100
200
100 50
300
200
100 50
300
200
100 50
300

49. EX 4 in class
Construct a material requirements plan which will result in 100 units of P1 at week 6, and 200 units of P2 at week 8 P1 P2 A
B(2)
A(2) B
C(3)
C(4)
C(3)
C(4)
Item
Lead Time
Quantity on Hand
Scheduled Receipts
Order Quantity P1 1
L4L P2 A 70
500 B 3 50
250 C 2
1000
WK 2
2000

50. Lot-Sizing Summary
In theory, lot sizes should be recomputed whenever there is a lot size or order quantity change
Lot-for-lot should be used when low-cost setups can be achieved
When setup costs are significant and demand is reasonably smooth, EOQ should give reasonable results
Use lot-sizing with care as it can cause considerable distortion of requirements at lower levels of the BOM