04 BSCM v4.1

Basics of Supply Chain Management
Material Requirements Planning (MRP)
Session 4
APICS Certified in Production and Inventory Management (CPIM)
41 © APICS CONFIDENTIAL AND PROPRIETARY

Basics of Supply Chain Management
1. 2. 3. 4. 5.
Capacity
Introduction to Material Management
Demand Master and
Supply Chain Requirements
Management Planning Production
Management Planning
Activity
Control
Aggregate Purchasing Lean and

Item Inventory Theory of
Inventory and Physical Quality
Management Constraints
Management Distribution Systems
6. 7. 8. 9. 10.

Learning Objectives
Material Requirements Planning Environment

– Explain the role of dependent versus independent demand in
material requirements planning (MRP).
– Describe the relationship between MRP and three other
functions in the manufacturing planning and control (MPC)
hierarchy.
Bill of Material
– Define parent and component in the bill of material (BOM), and
explain their relationship.
– Perform a simple BOM explosion.
– Explain the use of the planning bill.
– Differentiate between where-used reports and pegging reports.

Learning Objectives (cont.)
Material Requirements Planning Logic

– List four major inputs to MRP.
– Describe the role of lead-time offsetting and exploding.
– Explain the origin of the gross requirement in an MRP record.
– Calculate the net requirements for the end item and components.
– Offset a planned order release from a planned order receipt.
Using and Managing the Priority Plan

– Differentiate between a scheduled receipt and a planned order receipt.
– Differentiate between an open order, a planned order, and a firm
planned order.
– Explain the role of MRP software.
– List the events following the release of a planned order.
– List at least two techniques to maintain component and end-item due
dates in the priority plan.

Session 4
Material
Requirements
Planning
Environment

Nature of Demand
Independent demand
Table
100
Legs Ends Sides Top Hardware kit

306 403 711 025 822
Dependent demand

Manufacturing Planning and Control
Master planning
Business planning
Resource
Capacity planning
S&OP
Priority planning
planning
Rough-cut
Master scheduling capacity planning
(RCCP)
Capacity
MRP requirements
planning (CRP)
Execution
Execution
Input/output
Production activity control
control (PAC)
Order
sequencing

Objectives of MRP
To determine materials requirements:

What is required?
How much is required?
When is it required?
To keep priorities (planned order release

and receipt dates) current
react to changes in supply and demand
expedite, de-expedite, add, cancel, or
change planned orders.

MRP Process Inputs and Outputs
MPS data
Priority planning
BOMs
Net requirements
Inventory status
Planned order receipts
Manufacturing orders
Planning data To factory
(such as lead time) Planned order releases Purchase orders
To suppliers

Planning Software
Planning software
develops the priority plan for the release and receipt of
planned orders
advises planners of the need for actions to maintain the
priority plan
– releases planned orders
– takes action to maintain due dates affected by material
shortages, delayed production, and other events
updates or replans the priority plan to keep material

requirements, due dates, and inventory status current.
4  10 © APICS CONFIDENTIAL AND PROPRIETARY

Session 4
Bill of Material

Summarized Bill of Material
Each part has a
A BOM lists . . . and quantities to
unique part
all components . . . make one assembly.
number.
Description:
Part number: 100
table
Quantity Unit of
Part number Description
required measure
300 Base 1 Ea
306 Legs 4 Ea
326 Leg bolts 8 Ea
357 Frame 1 Ea
311 Wooden sides 2 Ea
433 Wooden ends 2 Ea
025 Top 1 Ea
031 Boards 3 Ea
075 Glue 1 Ea
822 Hardware kit 1 Kit
Indented Bill of Material
Description:
Part number: 100
table
Quantity Unit of
Part number Description
required measure
300 Base 1 Each
306 Legs 4 Each
326 Leg bolts 8 Each
357 Frame 1 Each
311 Wooden sides 2 Each
433 Wooden ends 2 Each
025 Top 1 Each
031 Boards 3 Each
075 Glue 1 Each
822 Hardware kit 1 Kit

Bill of Material
Table
Level 0
100
Single-level bill
Hardware
Components
Base Top Level 1
kit
300 025
822
Table
100 Level 0
Multilevel bill
Hardware
Base Top
kit Level 1
300 025
822
Legs Leg bolts Frame Boards Glue Level 2

306 326 357 031 075
Wooden Wooden Level 3

sides ends
311 433
Bill of Material: Summary
A multilevel BOM is a collection of single-level bills.

A subassembly parent also can be a component of an
assembly or subassembly.
If a component has no other components going into it, it
cannot be a subassembly and is an item purchased from
a supplier.
Table
100
Hardware
Base Top
kit
300 025
822

Problem 4.1
Given the following parents and components, construct a product tree.

Figures in brackets show the quantities per item.
Parent A B C E
Component B (2) E (2) G (2) G (4)
C (4) F (1) F (3)
D (3) H (2)
What number of Gs are needed?

Which components are purchased?

Problem 4.1 Solution
Number of Gs needed: 24
Purchased components: G, F, H, D

Planning Bill
Family
Bicycle
Common Color Size Type

Blue: 30% Small: 25% Female: 50%
Parts Red: 30% Medium: 50% Male: 50%
100% White: 40% Large: 25%

Where-Used and Pegging Data
Type of Description Uses

report
Where- Focus is on the component Identify parents affected by an
engineering change
used report Lists the parents in which a
component is used whether or not Assess aggregate impact of
there is a current requirement for it costing change
Assess the impact of component
scarcity
Pegging Focus is on the component Assess impact of component
shortages on current due dates
report Lists the parents creating a demand
(priority plans) for parent items
for a component for which there is a
requiring the same components
current requirement
in the same period
Includes components by parent and
quantities demanded by period

Uses of the Bill of Material
Product definition
Engineering change control
Planning
Customer service
Manufacturing
Service and repair
Costing
Source: Arnold et al., Introduction to Materials Management , 7th ed.
Reprinted by Permission of Pearson Education
Session 4
Material Requirements
Planning Logic

Approach
MRP logic
– Exploding and offsetting requirements
– Calculating gross and net requirements
Using and managing the priority plan

– Reliance on MRP applications software
– Control of planned and released orders
– Replanning

MPS data
Priority planning
Questions:
BOMs • What
Lead-time • How much
offsetting, • When
exploding, and
Inventory status netting of Planned order receipts
requirements
Planned order releases
Planning data
(lead time)

Key Components
Lead time: In MRP, the span of time from the planned order receipt period back
to the planned order release period
Offsetting: Placing the requirements (planned order releases) in their proper time
periods based on lead time
Exploding: The process of calculating the demand for the components of a
parent item by multiplying the parent item requirements by the
component usage quantity specified in the bill of material
—APICS Dictionary
Wk = Week; LT = lead time
Lead Time Offsetting and Exploding
Quantity per parent

in all cases = 1
Item Week
number Planned order 1 2 3 4 5
Receipt 50
B Release 50
Receipt
C Release
Receipt 50
D Release 50
Receipt
E Release
Receipt
F Release
Problem 4.2
Quantity per parent

in all cases = 1
Item Week
Receipt 50
B Release 50
Receipt
C Release
Receipt 50
D Release 50
Receipt
E Release
Receipt
F Release
Quantity per parent

in all cases = 1
Item Week
Receipt 50
B Release 50
Receipt 50
C Release 50
Receipt 50
D Release 50
Receipt 50
E Release 50
Receipt 50
F Release 50
Problem 4.3
Quantity per parent

in all cases = 1
Item Week
Receipt 200
X Release
Receipt
Y Release
Receipt
Z Release
Receipt
W Release
Receipt
V Release
Quantity per parent

in all cases = 1
Item Week
Receipt 200
X Release 200
Receipt 200
Y Release 200
Receipt 200
Z Release 200
Receipt 200
W Release 200
Receipt 200
V Release 200
Gross and Net Requirements
Net requirements = gross requirements – available inventory
In determining requirements for the

end item and all components, you
must account for available
inventory.

Available Inventory and Gross to Net
Item Week
number 1 2 3 4 5
Gross requirements 50
Projected available 20 20 20 20 20 0
B Net requirements 30
Planned order receipt 30
Planned order release 30
Projected available 10 10 10 ?
C Net requirements ?
Planned order receipt
Planned order release
Projected available 0 0 0 0
D Net requirements 30
Gross requirements
Projected available
E Net requirements
Projected available 0
F Net requirements 20

Problem 4.4
B Lead time =
1 week
C Lead time = D Lead time =

2 weeks
1 week
E Lead time = F Lead time =

1 week 1 week

Problem 4.4 (cont.)
Item Week
number 1 2 3 4 5
C Net requirements
Gross requirements
Projected available
E Net requirements

Item Week
number 1 2 3 4 5
Projected available 10 10 10 10 0
C Net requirements 20
Projected available 0 0
E Net requirements 20

Basic MRP Record
Lead time: 2 weeks
Lot size: As required
Item Week
number 1 2 3 4 5
Scheduled receipts 20
Net requirements 5

Problem 4.5

Problem 4.5 (cont.)
Item Week
number 1 2 3 4 5
Gross requirements
Scheduled receipts
Projected available
J Net requirements
Gross requirements
Scheduled receipts
Projected available
K Net requirements
Gross requirements
Scheduled receipts
Projected available
L Net requirements
Gross requirements
Scheduled receipts
Projected available
M Net requirements
Gross requirements
Scheduled receipts
Projected available
N Net requirements

Item Week
number 1 2 3 4 5
Scheduled receipts
J Net requirements 50
Projected available 50 50 0
K Net requirements 50
Scheduled receipts
L Net requirements
Scheduled receipts
M Net requirements 100
Scheduled receipts
N Net requirements

Capacity Requirements Planning
Master
RCCP
scheduling
MRP CRP
PAC

Session 4
Using and
Managing
the Priority Plan

Material Requirements Planning Software
MRP software applications
Time-phase priority planning Management support
• Gross, net, offset and explode

requirements. • Provide action messages.
• Create planned orders. • Provide exception

messages.
• Keep priorities current.

Order Control
Released (open) order

Lead time: 2 weeks
Item Week
number 1 2 3 4 5
Gross requirements 35 35
Net requirements 5 35
Planned order receipt 5 35
Planned order release 5 35F
Planned order Firm planned order

Releasing Planned Orders
Appears as a
scheduled
receipt in MRP
Release Becomes an Production activity control

planned order open order and purchasing
Create/release
purchase orders
Allocate
components to
the order
Create/release
shop orders

Events Affecting the Priority Plan
External
Changes to customer orders
Supplier shortages
Late deliveries from supplier
Internal
Lower yields or higher scrap factors than planned
Late or early open order completions
Capacity or resource shortages
Material shortages caused by inventory record inaccuracies

Actions Available to the Planner
Maintain priorities
Expedite orders
De-expedite orders
Change quantity requirements
Replanning
Changes in end-item due dates

Problem 4.6 Part 1
Lead time: 1 week
Pegging (week 2): 30 for product X
40 for product Y
Week
Part A
1 2 3 4
Gross requirements 70 60 50
Net requirement

Problem 4.6 Part 1 Solution
Lead time: 1 week
Pegging (week 2): 30 for product X
40 for product Y
Week
Part A
1 2 3 4
Projected available 20 20 0 0 0
Net requirement 0 60 50
Planned order release 60 50

Problem 4.6 Part 2
On Monday morning of week 2, the scheduled receipt of 50 has been inspected
and 20 have been rejected. Replan.
Week
Part A
2 3 4
Scheduled receipts
Net requirement

Problem 4.6 Part 2 Solution
On Monday morning of week 2, the scheduled receipt of 50 has been inspected
and 20 have been rejected. Replan.
Week
Part A
2 3 4
Projected available 20 -20 0 0
Net requirement 20 60 50

Planned order release 80 50

Session 4
Wrap-Up and
Homework

Learning Objectives
Material Requirements Planning Environment

– Explain the role of dependent versus independent demand in
MRP.
– Describe the relationship between MRP and three other
functions in the MPC hierarchy.
Bill of Material
– Define parent and component in the BOM, and explain their
relationship.
– Perform a simple BOM explosion.
– Explain the use of the planning bill.
– Differentiate between where-used reports and pegging reports.

Learning Objectives (cont.)

– List four major inputs to MRP.
– Describe the role of lead-time offsetting and exploding.
– Explain the origin of the gross requirement in an MRP record.
– Calculate the net requirements for the end item and components.
– Offset a planned order release from a planned order receipt.
Using and Managing the Priority Plan

– Differentiate between a scheduled receipt and a planned order receipt.
– Differentiate between an open order, a planned order, and a firm
planned order.
– Explain the role of MRP software.
– List the events following the release of a planned order.
– List at least two techniques to maintain component and end-item due
dates in the priority plan.

Vocabulary Check
Objective: Reinforce terminology used in this session.

Complete the activity in class, individually or in pairs, or
as homework.

Vocabulary Check Solution
1. d 7. k
2. i 8. h
3. g 9. b
4. a 10. f
5. c 11. j
6. e 12. l

Problem 4.7
C (2) D (1)
E (1) F (1) E (2) G (1)

Problem 4.7 (cont.)
Item Week
number 1 2 3 4 5
Gross requirements
Scheduled receipts
Projected available
B Net requirements
Gross requirements
Scheduled receipts
Projected available
C Net requirements
Gross requirements
Scheduled receipts
Projected available
D Net requirements
Gross requirements
Scheduled receipts
Projected available
E Net requirements
Gross requirements
Scheduled receipts
Projected available
F Net requirements
Gross requirements
Scheduled receipts
Projected available
G Net requirements
Item Week
number 1 2 3 4 5
Scheduled receipts
Projected available
Projected available 100 0
C Net requirements 100
Scheduled receipts
Projected available
Scheduled receipts
E Net requirements 300
Scheduled receipts
Scheduled receipts
G Net requirements 0

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Basics of Supply Chain Management

Material Requirements Planning (MRP)

APICS Certified in Production and Inventory Management (CPIM)

41 © APICS CONFIDENTIAL AND PROPRIETARY

Aggregate Purchasing Lean and

42 © APICS CONFIDENTIAL AND PROPRIETARY

Material Requirements Planning Environment

43 © APICS CONFIDENTIAL AND PROPRIETARY

Material Requirements Planning Logic

Using and Managing the Priority Plan

44 © APICS CONFIDENTIAL AND PROPRIETARY

45 © APICS CONFIDENTIAL AND PROPRIETARY

Legs Ends Sides Top Hardware kit

46 © APICS CONFIDENTIAL AND PROPRIETARY

47 © APICS CONFIDENTIAL AND PROPRIETARY

To determine materials requirements:

To keep priorities (planned order release

48 © APICS CONFIDENTIAL AND PROPRIETARY

49 © APICS CONFIDENTIAL AND PROPRIETARY

updates or replans the priority plan to keep material

4  10 © APICS CONFIDENTIAL AND PROPRIETARY

4  11 © APICS CONFIDENTIAL AND PROPRIETARY

4  13 © APICS CONFIDENTIAL AND PROPRIETARY

Legs Leg bolts Frame Boards Glue Level 2

Wooden Wooden Level 3

A multilevel BOM is a collection of single-level bills.

4  15 © APICS CONFIDENTIAL AND PROPRIETARY

Given the following parents and components, construct a product tree.

What number of Gs are needed?

4  16 © APICS CONFIDENTIAL AND PROPRIETARY

4  17 © APICS CONFIDENTIAL AND PROPRIETARY

Common Color Size Type

4  18 © APICS CONFIDENTIAL AND PROPRIETARY

Type of Description Uses

4  19 © APICS CONFIDENTIAL AND PROPRIETARY

Service and repair

4  21 © APICS CONFIDENTIAL AND PROPRIETARY

Using and managing the priority plan

4  22 © APICS CONFIDENTIAL AND PROPRIETARY

4  23 © APICS CONFIDENTIAL AND PROPRIETARY

Quantity per parent

Quantity per parent

Quantity per parent

Quantity per parent

Quantity per parent

Net requirements = gross requirements – available inventory

In determining requirements for the

4  30 © APICS CONFIDENTIAL AND PROPRIETARY

4  31 © APICS CONFIDENTIAL AND PROPRIETARY

C Lead time = D Lead time =

E Lead time = F Lead time =

4  32 © APICS CONFIDENTIAL AND PROPRIETARY

4  33 © APICS CONFIDENTIAL AND PROPRIETARY

4  34 © APICS CONFIDENTIAL AND PROPRIETARY

4  35 © APICS CONFIDENTIAL AND PROPRIETARY

4  36 © APICS CONFIDENTIAL AND PROPRIETARY

4  37 © APICS CONFIDENTIAL AND PROPRIETARY

4  38 © APICS CONFIDENTIAL AND PROPRIETARY

4  39 © APICS CONFIDENTIAL AND PROPRIETARY

4  40 © APICS CONFIDENTIAL AND PROPRIETARY

Time-phase priority planning Management support

• Gross, net, offset and explode

• Create planned orders. • Provide exception