24-Material Requirement Planning (MRP) - 15!11!2021 (15-Nov-2021) Material I 15-11-2021 MEE 1014 - MRP-new

MEE 1014
INDUSTRIAL ENGINERING AND

MANAGEMENT
Dr SAMPATH KUMAR T
Associate Professor
School of Mechanical Engineering
VIT University
Sampath.thepperumal@vit.ac.in
9443964297
Module VII
Material Requirements Planning

Objectives – Functions – MRP system – MRP logic – Management
information from MRP – Lot sizing consideration – Manufacturing
Resource Planning – Capacity Requirement Planning (CRP) – Bill of
Material.
Historical perspective
• Material requirement planning is a system used for planning the future

requirement of the dependent demand items.
• Black and decker was the first company to use MRP in 1964.
• Material requirement planning typically determine “when to order”
based on a average usage for a planned replenishment lead time + safety
stock to protect the severer demand.
MRP I / MRP II / ERP - ?
MRP MRP -ΙΙ ERP

What is MRP?
• Computerized Inventory Control

• Production Planning System
• Management Information System
• Manufacturing Control System
When to use MRP ?
• Job Shop Production

• Complex Products
• Assemble-to-Order Environments
• Discrete and Dependent Demand Items
What can MRP do?
• Reduce Inventory Levels

• Reduce Component Shortages
• Improve Shipping Performance
• Improve Customer Service
• Improve Productivity
• Simplified and Accurate Scheduling
• Reduce Purchasing Cost
• Improve Production Schedules
• Reduce Manufacturing Cost
• Reduce Lead Times
• Less Scrap and Rework
• Higher Production Quality
What can MRP do?
• Improve Communication
• Improve Plant Efficiency
• Reduce Freight Cost
• Reduction in Excess Inventory
• Reduce Overtime
• Improve Supply Schedules
• Improve Calculation of Material Requirements
• Improve Competitive Position
Types of Demand
There are two types of demand.

Independent Demand
• Is the demand for finished products
• Does not depend on the demand of other products
• Needs to be forecasted
Dependent Demand
• Is the demand derived from finished products
• Is the demand for component parts based on the number of end
items being produced and is managed by the MRP system
Types of Demand
ITEM MATERIALS WITH MATERIALS WITH

INDEPENDENT DEPENDENT DEMAND
DEMAND
Demand source Company customers Parent items
Material type Finished goods WIP & Raw materials
Method of Forecast & booked custom Calculated
estimating demand orders
Planning method EOQ & ROP MRP
MRP Structure
Three Basic Steps of MRP
I. Identifying Requirements
II. Running MRP – Creating the Suggestions
III. Firming the Suggestions
Step 1: Identifying the Requirements
✓ Quantity on Hand
✓ Quantity on Open Purchase Order
✓ Quantity in/or Planned for Manufacturing
✓ Quantity Committed to Existing Orders
✓ Quantity Forecasted
Step 1: Identifying the Requirements
✓ Company Sensitive
✓ Location Sensitive
✓ Target time (Date) Sensitive
Step 2: Running MRP – Creating the Suggestions
❑ Critical Items
❑ Expedite Items
❑ Delay Items
Step 3: Firming the Suggestions
o Manufacturing Orders
o Purchasing Orders
o Various Reports
Overview of the MRP System
Master
Product Inventory Master
Production
Structure File File
Schedule
Material Requirements
Planning
Manufacturing
Purchase Orders Various Reports
Orders
MRP Inputs
▪ Product Structure File

▪ Master Production Schedule
▪ Inventory Master File
Product Structure File
▪ Bill of Materials
Master Production Schedule
• Schedule of Finished Products

• Represents Production, not Demand
• Combination of Customer Orders and Demand Forecasts
• What Needs to be Produced
Inventory Master File
• On-Hand Quantities
• On-Order Quantities
• Lot Sizes
• Safety Stock
• Lead Time
• Past-Usage Figures
MRP Process
• Schedules the Production of all items using an MRP Matrix
Item: Low-Level Code: PD 1 2 3 4 5

Lot Size: Lead Time:
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases

Terminologies - Defined
• Item – name or number for the item being scheduled

• Low-Level Code – the lowest level of the item on the product structure file
• Lot Size – order multiples of quantity
• Lead Time – the time from when an order is placed to when it is received
• PD – Past Due Time Bucket, orders behind schedule.
• Gross Requirements – demand for an item by time period
• Scheduled Receipts – material already ordered
• Projected on Hand – expected ending inventory
• Net Requirements – number of items to be provided and when ?
• Planned Order Receipts – net requirements adjusted for lot size
• Planned Order Releases – planned order receipts offset for lead times
Terminologies - Defined
• Netting
The material that is actually required to meet the demand generated by the
MPS is the net requirement.
The method of finding out the net requirement for components is termed as
netting
Net requirements in period ‘t’ (netting) = Gross requirement in period ‘t’ ‒

On hand inventory in period ‘t’ ‒ Scheduled receipt + Safety stock
MRP Outputs
• Purchase requisition
• Purchase Order
• Sub contracting order
• Manufacturing Order
• Transferring Order
• Action Report
• Exception Report
MRP Inputs and Outputs - Nutshell
Master
Production
Schedule
Bill of Inventory
Materials Status
Material
Requirements
Planning System
Purchasing
Item Master
Data
Planned Order
& Other
Reports
MRP Benefits
• Increased customer satisfaction due to meeting delivery schedules

• Faster response to market changes
• Improved labour & equipment utilization
• Better inventory planning & scheduling
• Reduced inventory levels without reduced customer service
Advantages of MRP
• It helps in maintain minimum inventory levels.

• With minimum inventory levels, material planning also reduces
associated costs.
• Material tracking becomes easy and ensures that economic order
quantity is achieved for all lot orders.
• Material planning smoothens capacity utilization and allocates
correct time to products as per demand forecast.
Dis-advantages of MRP
• Material planning is highly dependent on inputs it receives from other

systems or department. If input information is not correct than output
for material planning will also be incorrect.
• Material planning requires maintenance of robust database with all
information pertaining inventory records, production schedule, etc.
without which output again would be incorrect.
• Material planning system requires proper training for end users, as to
get maximum out of the system.
• Material resource planning system requires substantial investment of
time and capital.
Product Structure
Clipboard
Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)
Product Structure Tree
Clipboard Level 0
Pressboard Clip Ass’y Rivets

(1) (1) (2) Level 1
Top Clip Bottom Clip (1) Pivot Spring

(1) (1) (1) Level 2
Multilevel Indented BOM
Level Item Unit of Quantity

measure
0 Clipboard Nos. 1
1 Clip assembly Nos. 1
2 Top clip Nos. 1
2 Bottom clip Nos. 1
2 Pivot Nos. 1
2 Spring Nos. 1
1 Rivet Nos. 2
1 Press board Nos. 1
Item Master File
DESCRIPTION INVENTORY POLICY
Item Pressboard Lead time 1week

Item no. 7341 Annual demand 5000 Nos.
Item type Punch Holding cost 1
Product/sales class Comp Ordering/setup cost 50
Value class B Safety stock 0
Buyer/planner RSR Reorder point 39
Vendor/drawing 07142 EOQ 316
Phantom code N Minimum order qty. 100
Unit price/cost 1.25 Maximum order qty. 500
Pegging Y Multiple order qty. 1
LLC 1 Policy code 3
Item Master File
PHYSICAL INVENTORY USAGE/SALES

On hand 150 YTD usage/sales 1100
Location W142 MTD usage/sales 75
On order 100 YTD receipts 1200
Allocated 75 MTD receipts 0
Cycle 3 Last receipt 8/25
Last count 9/5 Last issue 10/5
Difference -2
CODES
Cost acct. 00754
Routing 00326
Engr 07142
MRP: Example
Master Production Schedule

1 2 3 4 5
Clipboard 85 95 120 100 100

Lapdesk 0 60 0 60 0
Item Master File

CLIPBOARD LAPDESK PRESSBOARD
On hand 25 20 150
On order 175 (Period 1) 0 0
(Sch. receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1
MRP: Example (cont.)
Product Structure Record
Clipboard Level 0
Pressboard Clip Ass’y Rivets

Level 1
(1) (1) (2)
Lapdesk Level 0
Pressboard Trim Beanbag Glue

Level 1
(2) (3’) (1) (4 oz)
ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5
Gross Requirements 85 95 120 100 100
Scheduled Receipts 175
Projected on Hand 25
Net Requirements
ITEM: CLIPBOARDLLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115
Net Requirements 0
(25 + 175) = 200 units available

(200 - 85) = 115 on hand at the end of Period 1

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20
Net Requirements 0 0
115 units available

(115 - 85) = 20 on hand at the end of Period 2

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100
20 units available
(20 - 120) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100
Following the same logic Gross Requirements in Periods 4 and 5

develop Net Requirements, Planned Order Receipts, and Planned
Order Releases
ITEM: LAPDESK LLC: 0 PERIOD

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 50 50
Planned Order Releases 50 50
Following the same logic, the Lapdesk MRP matrix is

completed as shown

LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARDLLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Net Requirements

LOT SIZE: L4L LT: 1 1 2 3 4 5
ITEM: LAPDESK LLC: 0 x1 PERIOD x1 x1
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARDLLC: 0 x2 x2 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements

LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARDLLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 100 150 100
Planned Order Report

PERIOD
ITEM 1 2 3 4 5
Clipboard 100 100 100

Lapdesk 50 50
Pressboard 100 150 100
Nervousness in MRP system
MRP nervousness system is defined, as one that causes excessive changes to

low-level requirements when the master schedule is not changed
significantly. - Steele
Nervousness as ‘changing the required due date on a related replenishment

order for either a purchased or manufactured material.’ – Mather
MRP system nervousness as ‘instability in planned orders’ caused by

uncertainty in demand (and supply of components) and variations in lot-
sizing decisions. - Blackburn
Reasons and causes for nervousness in MRP system
The following reasons and causes for Nervousness

o Master schedule changes/unplanned demand
o Allocation not issued in expected quantity
o Order released in unplanned quantity
o Order released prematurely
o Parameter changes
o Engineering changes
o Record errors
o Unplanned transactions
Nervousness in an MRP system is normally indicated by the generation of

exception reports, which show that the previous schedule has changed.
- Minifie and Davis
The three basic types of exception situation are:
1. The need for expediting
2. Rescheduling (delaying or cancelling) open orders
3. Releasing planning orders
• Expedite messages occur when actual requirements cannot be covered by

current inventory and scheduled receipts.
• Reschedule messages take place whenever excessive immediate coverage
of requirements occur.
• The release message is generated when actual scheduled receipts provide
insufficient coverage to meet present requirements.
• Causes-schedule quantity and/or timing imbalances.
• Reasons-imperfect end-time forecasts, MPS changes or lot-sizing effects.
Problems in MRP system
• The user has to specify how long it takes a factory to make a product
from its components.
• This system assume lead time is constant.
• This system could not include resource planning in its system.
• MPS is only depends on Forecast value or firm order.
Manufacturing Resource Planning (MRP II)
A method for the effective planning of all resources of manufacturing-

• Financial accounting incorporated
• Sales
• Operations Planning
• Simulate capacity requirements of different possible Master Production
Schedules.
MRP 2 is the incremental information integration business process strategy
implemented using hardware and modular software application linked to
central database that store business data and information.
Features of MRP-II
▪ Fluctuation of forecast is taken into account by including simulation

of MPS.
▪ MRP2 is a total company management concept for using more

human resources effectively.
▪ The MRP2 is carried out by a synergistic combination of computer

and human resources.
▪ The integration extends from strategic to operational level and

encompasses long term planning up to short term control.
Benefits of MRP-II
▪ Increased direct labor productivity
▪ High accuracy of inventory and manufacturing capacity
▪ Effective interaction between different functions due to common

databases and improved information flow
▪ Quicker implementation of engineering changes
▪ Simulation capability to test what-if scenarios in a risk free

environment
▪ Company focus shifts from crisis management to process control

Benefits of MRP-II
▪ For Manufacturing Functions:
• Better control of inventories
• Improved scheduling
• Productive relationships with suppliers
▪ For Financial and Costing Functions :

• Reduced working capital for inventory
• Improved cash flow through quicker deliveries
• Accurate inventory records
• Timely and valid cost and profitability information
▪ For Design / Engineering Functions :

• Improved design control
• Better quality and quality control 56
Rough-cut capacity planning (RCCP)
To modify the key resource levels or material
plan to ensure the execution of the MPS
Examples: (Labour, machinery, warehouse space,
supplier’s capabilities)
Two basic functions:
1. Testifies the validation of a production plan and
the MPS before doing any detailed material or
capacity planning
2. It initiates actions for making mid-range to long
–range capacity arrangements
11/17/2021 T.Sampath Kumar/SMEC/VIT 57
The Role of RCCP in PPC system
Flexible Production and Inventory planning to meet the desires of
the customer, the need for stability in manufacturing and the
resultant inventory levels to compensate for the mismatch. It involves
performing three functions effectively:
–Developing an achievable Master Production Schedule.
–Planning and controlling priorities.
–Planning and controlling capacities.
•Priority Planning is the process of specifying batch quantities and
their start and finish dates for all items
•Priority Control is making the right things at the right time.
•Capacity planning is the task of determining how much output is
needed from plant facilities and from suppliers.
•Capacity control is the comparison between planned levels and
actual outputs achieved and the identification of significant variances
above or below plan. Corrective action must be initiated promptly if
control is to be maintained.
Rough-cut capacity planning (RCCP)
Benefits of RCCP
• Simpler and quicker approach to master
schedulers
• It does not require greater accuracy
• It requires minimum computational time
Drawbacks of RCCP
• It cannot be used as a short term planning tool
• It does not calculate capacity requirements by
work centers.
• It considers only key or critical resources
Capacity Requirements Planning (CRP)
• It is directly connected with MRP
• It focuses on components and subassemblies, therefore more

detailed, complete and accurate
• It is concerned with individual orders at individual work

centers and calculates work center loads and labour
requirements for each time period at each work center.
• A tool for:
– determining capacity that is available and required.
– Avoid bottleneck work centers.
• Helping planners make the right decisions on scheduling

before problems develop.
• Verifies that you have sufficient capacity available to meet the

capacity requirements for MRP plans.

Capacity Requirements Planning (CRP)
– Inputs:
• Planned order releases
• Routing file
• Open orders file
• Alternative routing
• Work center file
– Outputs:
• Load Profile for each work center

Inputs of CRP
• Planned Order Releases: Information from the Material
Requirements Planning which tells when you should start the
order so it can be completed on time.
(Eg. Planned order release date, Planned order receipt date and
Planned order quantity)
• Routing Files: Information that details the requirements of

equipment and labour to complete the order as needed in the
required time frame.
(Eg. Operations to be performed, Sequence of operations, work
center details, Tooling needed, Setup and run times, Inspection
and testing requirements)
• Open Orders Files: Information regarding the orders that are

currently started and need to be completed.
(Eg. Order due date, order quantity, operation completed and
operations remaining)

Inputs of CRP
• Alternative routing: An item can also have one or more alternative
routings. This alternative routings are used when the primary
routing is not available (Overloaded)
• Work center file: It is a specific production area, consisting of one

or more people or machine with identical capabilities. It is a prime
input for CRP.
It includes
• Queue time – Job waits at a work center before being handled
• Waiting time – job waits at work center after completion
• Move time – Job moves from one work center to another
• Lead time – It is the sum of queue, setup, run, wait and move times
• Load activity – Any activity that requires the resources or the
capacity of a work center
• Shop calender – Information about the number of working days
available

output of CRP
load profile for each Work center :

• The work center load reports shows future capacity
requirements based on the released and the
planned orders for each time period on the
production plan.
• Load reports are very detailed and prescribe units

of output required and labour by skill level or even
by employee required.

Bill of Materials (BOM)

Definition
Bill of Materials (BOM)
• A listing of all the subassemblies, intermediates,
parts, and raw materials that go into a parent
assembly showing the quantity of each required
to make an assembly.
• Basically, a bill of material (BOM) is a complete
list of the components making up an object or
assembly.
• BOM is a product tree structure diagram which
list out all the parts and components that go into
making the product in a hieratical manner.
Processes that utilize a BOM
• Production
• Materials planning
• Product costing
• Plant maintenance

Types of BOMs
• Static (fixed) bill
– A bill of material for a part that is normally made from the
same components, labor and raw materials.
– Used for standard assemblies, components, and engineer-
to-order customer orders.
• Example:
– A bill of materials for a standard chair

Types of BOMs
• Dynamic (parametric) bill
– A bill of material for a product or part for which
size, color, laminate, and other options can be
selected.
• Example:
– A bill of materials for a Dell computer

Types of BOMs
• Single level bill of material
– A bill of material that lists the materials, parts and
labor required to make another part.
• Example:
– A bill of materials to make a Dell computer

Types of BOMs
• Multilevel bill of material
– A bill of material that lists the components, assemblies,
and materials required to make a part, the components,
assemblies, and materials required to make each
component and assembly of the part, and so forth.
• In a multi level BOM, a parent / child relationship
between successive levels is formed.
• Example:
– A BOM for the battery inside the Dell computer.

Product Structure of a BOM

Product structure/Bill of materials structure of fire extinguisher

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MEE 1014

INDUSTRIAL ENGINERING AND

Material Requirements Planning

• Material requirement planning is a system used for planning the future

MRP MRP -ΙΙ ERP

• Computerized Inventory Control

• Job Shop Production

• Reduce Inventory Levels

There are two types of demand.

ITEM MATERIALS WITH MATERIALS WITH

▪ Product Structure File

• Schedule of Finished Products

• Schedules the Production of all items using an MRP Matrix

Item: Low-Level Code: PD 1 2 3 4 5

Planned Order Receipts

Planned Order Releases

• Item – name or number for the item being scheduled

Net requirements in period ‘t’ (netting) = Gross requirement in period ‘t’ ‒

• Increased customer satisfaction due to meeting delivery schedules

• It helps in maintain minimum inventory levels.

• Material planning is highly dependent on inputs it receives from other

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Pressboard Clip Ass’y Rivets

Top Clip Bottom Clip (1) Pivot Spring

Level Item Unit of Quantity

DESCRIPTION INVENTORY POLICY

Item Pressboard Lead time 1week

PHYSICAL INVENTORY USAGE/SALES

Master Production Schedule

Clipboard 85 95 120 100 100

Item Master File

Product Structure Record

Pressboard Clip Ass’y Rivets

Pressboard Trim Beanbag Glue

ITEM: CLIPBOARD LLC: 0 PERIOD

ITEM: CLIPBOARDLLC: 0 PERIOD

(25 + 175) = 200 units available

ITEM: CLIPBOARDLLC: 0 PERIOD

115 units available

ITEM: CLIPBOARDLLC: 0 PERIOD

ITEM: CLIPBOARDLLC: 0 PERIOD

Following the same logic Gross Requirements in Periods 4 and 5

ITEM: LAPDESK LLC: 0 PERIOD

ITEM: LAPDESK LLC: 0 PERIOD

Following the same logic, the Lapdesk MRP matrix is

ITEM: CLIPBOARDLLC: 0 PERIOD

ITEM: CLIPBOARDLLC: 0 PERIOD

ITEM: CLIPBOARDLLC: 0 PERIOD

Planned Order Report

Clipboard 100 100 100

MRP nervousness system is defined, as one that causes excessive changes to

Nervousness as ‘changing the required due date on a related replenishment

MRP system nervousness as ‘instability in planned orders’ caused by

The following reasons and causes for Nervousness

Nervousness in an MRP system is normally indicated by the generation of

• Expedite messages occur when actual requirements cannot be covered by

A method for the effective planning of all resources of manufacturing-

▪ Fluctuation of forecast is taken into account by including simulation

▪ MRP2 is a total company management concept for using more

▪ The MRP2 is carried out by a synergistic combination of computer

▪ The integration extends from strategic to operational level and

▪ Increased direct labor productivity