1. MRP

2. Learning Objectives
Describe the conditions under which MRP is most appropriate.
Describe the inputs, outputs, and nature of MRP processing.
Explain how requirements in a master production schedule are translated into material requirements for lower-level items.
Discuss the benefits and requirements of MRP.

3. Learning Objectives
Explain how an MRP system is useful in capacity requirements planning.
Outline the potential benefits and some of the difficulties users have encountered with MRP.
Describe MRP II and its benefits.
Describe ERP, what it provides, and its hidden costs.

4. MRP
Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
End products
Time-phase based
Subassemblies
Components
Raw materials
MRP

5. Independent and Dependent Demand
Independent Demand A
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Dependent Demand
Independent demand is uncertain. Dependent demand is certain.

6. Dependant Demand
Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.
Once the independent demand is known, the dependent demand can be determined.

7. Demand “Lumpy” demand Demand Stable demand Amount on hand Safety stock
Time
Demand
Stable demand
“Lumpy” demand
Amount on hand
Safety stock

8. Overview of MRP MRP Inputs MRP Processing MRP Outputs Master schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
transaction
Primary
Secondary

9. MPR Inputs Master Production Schedule
Time-phased plan specifying timing and quantity of production for each end item.
Material Requirement Planning Process
Product Structure Tree
Inventory
Lead Times

10. Master Schedule
Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.
Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.

11. Planning Horizon 1 2 3 4 5 6 7 8 9 10 Fabrication Assembly
Procurement
Fabrication
Subassembly
Assembly
Time Period (weeks)

12. Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

13. Product Structure Tree
Chair
Seat
Legs (2)
Cross
bar
Side
Rails (2)
Back
Supports (3)
Leg
Assembly
Level 1 2
Level 1 2 3
E (4)
E (4) E
E (2)

14. Inventory Records One of the three primary inputs in MRP
Includes information on the status of each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more …

15. Inventory Requirements
Net requirements:
Available Inventory:
Net Requirements = Gross Requirements – Available Inventory
Available Inventory = Projected on hand – Safety stock
– Inventory allocated to
other items

16. Assembly Time Chart 1 2 3 4 5 6 7 8 9 10 11 Procurement of
raw material D
raw material F
part C
part H
raw material I
Fabrication
of part G
of part E
Subassembly A
Subassembly B
Final assembly
and inspection 1 2 3 4 5 6 7 8 9 10 11

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

18. Gross Requirements Plan
Week
Lead Time
Required date Order release date week
Required date Order release date weeks
Required date Order release date week
Required date Order release date week
Required date Order release date weeks
Required date Order release date week
Required date Order release date week

19. Net Requirements Plan

20. Net Requirements Plan

21. MRP Processing Gross requirements Schedule receipts Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

22. MPR Processing Gross requirements Scheduled receipts Projected on hand
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected on hand
Expected inventory on hand at the beginning of each time period

23. MPR Processing Net requirements Planned-order receipts
Actual amount needed in each time period
Planned-order receipts
Quantity expected to be received at the beginning of the period
Offset by lead time
Planned-order releases
Planned amount to order in each time period

24. 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, costs may be high as well
Economic order quantity (EOQ)
EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand

25. Lot-Sizing Techniques
Part Period Balancing (PPB) looks at future orders to determine most economic lot size
EPP = setup cost / holding cost
Programming technique
Assumes a finite time horizon
Effective, but computationally burdensome

26. Lot-for-Lot Example
Week 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
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week

27. Lot-for-Lot Example No on-hand inventory is carried through the system
Total holding cost = $0
There are seven setups for this item in this plan
Total setup cost = 7 x $100 = $700 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
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week

28. Average weekly gross requirements = 27; EOQ = 73 units
EOQ Lot Size Example
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand 43 66 26 69 39
Net requirements 16
Planned order receipts 73
Planned order releases
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units

29. Average weekly gross requirements = 27; EOQ = 73 units
EOQ Lot Size Example
Annual demand = 1,404
Total cost = setup cost + holding cost
Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)
Total cost = $3,798 /year
Cost for 10 weeks = $3,798 x (10/52) = $730 Or
Total cost = 4 x $ x ($1 /weeks)
Total cost = $718 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements 16
Planned order receipts 73
Planned order releases
Holding cost = $1/week; Setup cost = $100/times; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units

30. Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
PPB Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand 50 60
Net requirements
Planned order receipts 80
100
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
; EPP = 100 units

31. Holding cost = $1/week; Setup cost = $100;
PPB Example
Trial Lot Size
Periods (cumulative net Costs
Combined requirements) Part Periods Setup Holding Total
2 30 0
2, = 40 x 1
2, 3, = 40 x 1
2, 3, 4, = 50 x x
2, 3, 4, 5, = 90 x x 2
+ 40 x 1 + = 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
Combine periods as this results in the Part Period closest to the EPP
6 40 0
6, = 30 x 1
6, 7, = 30 x 1
6, 7, 8, = 60 x x + =
Combine periods as this results in the Part Period closest to the EPP
Total cost + =
Holding cost = $1/week; Setup cost = $100;
EPP = 100 units

32. Lot-Sizing Summary For these three examples Lot-for-lot $700 EOQ $730
PPB $490
Wagner-Whitin would have yielded a plan with a total cost of $455 for this example

33. Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand 50
Net requirements
Planned order receipts 80 70 85
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
; EPP = 100 units

34. Lot-Sizing Summary
In theory, lot sizes should be recomputed whenever there is a lot size or order quantity change
In practice, this results in system nervousness and instability
Lot-for-lot should be used whenever economical
Lot sizes can be modified to allow for scrap, process constraints, and purchase lots

35. Lot-Sizing Summary
Use lot-sizing with care as it can cause considerable distortion of requirements at lower levels of the BOM
When setup costs are significant and demand is reasonably smooth, PPB, Wagner-Whitin, or EOQ should give reasonable results

36. Updating the System Regenerative system Net-change system
Updates MRP records periodically
Net-change system
Updates MPR records continuously

37. MRP Primary Reports
Planned orders - schedule indicating the amount and timing of future orders.
Order releases - Authorization for the execution of planned orders.
Changes - revisions of due dates or order quantities, or cancellations of orders.

38. MRP Secondary Reports Performance-control reports
system evaluation, deviation, late delivery, stockouts
Planning reports
useful for forecasting future inventory, assess future material requirement
Exception reports
late or overdue orders, excessive scrap rate, requirement of non-existing parts

39. Material Checking & Balancing
Use for monitoring of amount of part and product during processes
Needs information to balance materials
Accumulative production planning or target plan
BOM or Assembly diagram
Normally periodic checked

40. Material Checking & Balancing
Week A B C D E F G H I J K
Assembly diagram D N O S A J M F
Target Plan
Accumulative production K J I H G F E D C B A
Balancing chart

41. Resource Requirements Profile
200 –
150 –
100 –
50 – – 1 2 3 4 5 6 7 8
Period
(a)
Standard labor hours
200 –
150 –
100 –
50 – – 1 2 3 4 5 6 7 8
Period
(b)
Standard labor hours
Capacity exceeded in periods 4 & 6
Lot 6 “split”
Lot 11 moved
Lot 1 2 4 7 8 3 5 10 13 9 12 14 16 6 15 11
Available capacity
Available capacity
Lot 1 2 4 7 8 3 5 10 13 9 12 14 16 6 15 11

42. Smoothing Tactics Overlapping Operations splitting Lot splitting
Sends part of the work to following operations before the entire lot is complete
Reduces lead time
Operations splitting
Sends the lot to two different machines for the same operation
Shorter throughput time but increased setup costs
Lot splitting
Breaking up the order into smaller lots and running part ahead of schedule

43. Other Considerations Safety Stock Lot sizing Lot-for-lot ordering
Economic order quantity
Fixed-period ordering

44. MRP in Services Food catering service End item => catered food
Dependent demand => ingredients for each recipe, i.e. bill of materials

45. Benefits of MRP Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Ability to easily determine inventory usage by backflushing
Backflushing: Exploding an end item’s bill of materials to determine the quantities of the components that were used to make the item.

46. Requirements of MRP Computer and necessary software
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data

47. MRP II Expanded MRP with emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing

48. MRP II Market Demand Production plan Problems? Yes No Finance
Rough-cut
capacity planning
Yes No
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity
planning
Requirements
schedules
Adjust master schedule

49. ERP Enterprise resource planning (ERP):
Next step in an evolution that began with MPR and evolved into MRPII
Integration of financial, manufacturing, and human resources on a single computer system.

50. ERP Software
ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization
Provides tools for planning and monitoring various business processes
Includes
Production planning and scheduling
Inventory management
Product costing
Distribution

51. MRP in Services Service applications such as: Professional services
Postal services
Retail
Banking
Healthcare
Higher education
Engineering
Logistical services
Real estate

52. ERP Strategy Considerations
High initial cost
High cost to maintain
Future upgrades
Training