MATERIAL REQUIREMENTS PLANNING (MRP)

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MASTER PRODUCTION SCHEDULE (MPS)

 The master schedule deals with end items and is a major input to the MRP process.

 All production systems have limited capacity and limited resources.

 The aggregate plan provides the general range of operation; the master scheduler must

specify exactly what is to be produced.

 To determine an acceptable feasible schedule to be released to the shop, trial

master production schedules are tested using the MRP program.

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FROM APP TO MPS

Aggregate plan shows

overall quantities to
produce – without
specifying type.

MPS shows quantities

of each type, with
information about the
production time frame.

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ROLE OF TIME FENCES

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MATERIAL REQUIREMENTS PLANNING

 The logic that ties production functions together from a material planning and control
view

 A logical, easily understood approach to the problem of managing the parts,

components, and materials needed to produce end items
 How much of each part to obtain?

 When to order or produce the parts?

 Dependent demand drives the MPR system

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MRP – SYSTEM STRUCTURE
MRP
system
inputs

MRP
system
outputs

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PRODUCT DEMAND SOURCES

 Customers – specific orders placed by either external or internal customers

 Aggregate production plan – the firm’s strategy for meeting demand in the future,
implemented through the master production schedule (MPS)

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BILL OF MATERIALS

Contains the complete product

Often called the product structure
description, listing the materials,
file or product tree because it
parts, and components along with
shows how a product is put
the sequence in which the product
together.
is created.

The BOM shows

how the product is
put together.

Modular bill of materials is a

buildable item that can be Super bill of materials includes
produced and stocked as a items with fractional options.
subassembly.

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BOM EXAMPLE
Product A – Product A
the end item consists of
2 B and 3 C

Product C consists of
Product B 2 F, 5 G, and
consists of 4H
1 D and 4 E

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BOM – STRUCTURES & HIERARCHY
Higher levels (lower
numbers) refer to end
products.

Lower levels (higher

numbers) refer to
components and raw
materials. 11
BOM EXAMPLE

Source: Link 12
INVENTORY STATUS RECORDS

Basic
information
describing
the item

Information
about part
availability

Additional
information
that may be
useful

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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.

On-hand balance and schedule of orders are used to

calculate the “net requirement.”

Net requirements data are used to calculate when

orders should be received to meet these
requirements.

Planned order releases are generated by offsetting

to allow for lead time.

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MRP – EXPLOSION PROCESS (CONTD.)

Move to level 1 items.

Gross requirements for each level 1 item are

calculated from the planned-order release
schedule for the parents of each level 1 item.

Net requirements, planned-order receipts, and

planned-order releases are calculated as
described in steps 2–4.

Repeat for all items in bill of materials.

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MRP EXAMPLE – AMPERE, INC.

 Ampere, Inc., produces a line of electric meters installed in residential buildings.

 Meters are of two basic types for different voltage and amperage ranges.
 Some subassemblies are sold separately for repair or for changeovers.

 The problem is to determine a production schedule to identify each item, the

period it is needed, and the appropriate quantities.

 The schedule is then checked for feasibility, and the schedule is modified if
necessary.

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FUTURE REQUIREMENTS – METERS (A,B) & SUBASSEMBLY (D)

Assume that required Trial Master Schedule

quantity must be
available during week 1
of each month.

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PRODUCT STRUCTURE & INVENTORY DATA

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MRP PLANNING SCHEDULE

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MRP – ANOTHER EXAMPLE

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MRP – ANOTHER EXAMPLE (2)

Without an order here,

inventory will drop below
To accommodate the lead the safety stock.
time, orders must be
released ahead of time.
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MRP – ANOTHER EXAMPLE (3)

Without an order here,

inventory will drop below
To accommodate the lead the safety stock.
time, orders must be
released ahead of time.

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MRP – ANOTHER EXAMPLE (4)

Total demand from planned

order releases of parent
items

Planned order release offset

by 3 periods due to lead time

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LOT SIZING IN MRP SYSTEMS

 Determination of lot
sizes in an MRP
Economic order
system is a Lot-for-lot (L4L)
quantity (EOQ)
complicated and
difficult problem.
Lot Sizing
 Lot sizes – the part Strategies
quantities issued in
the planned order
receipt and planned Least total cost Least unit cost
(LTC) (LUC)
order release
sections of an MRP
schedule

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LOT FOR LOT (L4L)

Produces exactly
Sets planned orders what is needed each
to exactly match the week with none
net requirements. carried over into
future periods.

Does not take into

Minimizes carrying account setup costs
cost. or capacity
limitations.

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ECONOMIC ORDER QUANTITY (EOQ)

EOQ was not

Calculate reorder designed for a
quantity based on system with discrete
EOQ. time periods such as
MRP.

The lot sizes

generated by EOQ
do not always cover
the entire number of
periods.
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LOT SIZING - EXAMPLE

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COMPARISON – L4L & EOQ

Lot-
for-
Lot

EOQ

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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

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LEAST TOTAL COST - CALCULATIONS

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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

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LEAST UNIT COST - CALCULATIONS

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LOT SIZING – ANOTHER EXAMPLE

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LOT SIZING – LOT FOR LOT

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LOT SIZING – EOQ

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LOT SIZING – LTC

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LOT SIZING – LTC ORDERS

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LOT SIZING – LUC

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LOT SIZING – LUC ORDERS

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LOT SIZING – DECISION

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