4.

MATERIAL REQUIREMENTS PLANNING

1GE303 OPERATIONS
MANAGEMENT

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 Material Requirements Planning

Agenda
4. Materials Requirement Planning
4.1. Material requirements planning (MRP)
4.2. From MRP to ERP
4.3. Inputs and outputs
4.4. Batch definition

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 Material Requirements Planning

4.1. Material requirements planning

Definition
MRP is an information system for managing stocks and planning production or purchase of materials
with dependent demand.

It is a set of programs or procedures that are executed from time to time (e.g., weekly). Each time they
are run, new information is incorporated:
- materials’ needs;
- operating conditions;
- component deliveries.

MRP is a good solution for companies without interest/dimension for advanced solutions (ex: ERP):
▪ allows to know when and how much to produce or to order components;
▪ allows to compare component requirement dates with component availability dates;
▪ provides a basis for planning detailed capacity utilization.

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 Material Requirements Planning

4.2. From MRP to ERP

MRP II – Manufacturing resources planning
▪ taking into consideration production or purchasing orders obtained from MRP-I,
▪ loads for the different sections and machines are determined,
▪ and then such loads are compared with the available production capacity.

If production capacity is insufficient:

▪ one should adjust capacity, or
▪ if such adjustments are not possible or sufficient, one should review production batches, or
▪ if all previous adjustments are still insufficient, one should revise the MPS.

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 Material Requirements Planning

4.2. From MRP to ERP

MRP II – Manufacturing resources planning
▪ Extends the MRP by considering manufacturing resources planning (ex: how many machines?)
▪ Considers capacity requirements (CRP – Capacity Requirements Planning)

The idea that "MRP-II closes the loop“, comes from the previous reasoning:

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 Material Requirements Planning

4.2. From MRP to ERP

As we integrate new decisions in these systems, the impacts on the supply chain are felt in more and
more areas.

Let’s focus here

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs

(1) Bill of Materials (BOM)

(2) Master Production Schedule (MPS)
(3) Inventory records file

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (1) Bill of Materials (BOM)

File containing information about the structure of the product(s), i.e., specifying which and how many
components are required per unit of each product.

The information about the structure of the product(s):

▪ is static;
▪ can be broken down into several levels;
▪ can be represented in tree or in indented format.

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (1) Bill of Materials (BOM) – Example for product A

Tree format: Indented format

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (1) Bill of Materials (BOM) – Example for the structure of a board game

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (2) Master Production Schedule (MPS)

File / document that gathers information on when and how much should be produced of the final
product(s) – independently sourced material(s), that can be managed by one of the systems seen before.

The master production plan:

▪ is prepared for a number of time periods, which duration and number determines the planning
horizon under consideration;
▪ its information is dynamic.

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (2) Master Production Schedule (MPS)

The Aggregate Production Plan is a broad plan, typically dealing with large product families. The MPS
disaggregates the aggregate plan.

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 Material Requirements Planning

4.3. Inputs and outputs

Inputs (3) Inventory records file

Contains information about:

▪ the quantities in stock of both
final product(s) and
components;
▪ expected component deliveries;
▪ replenishment periods of both
final product(s) and
components.

This information is dynamic.

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 Material Requirements Planning

4.3. Inputs and outputs

Outputs

The main outputs are a number of reports with information about production orders / order issue plans,
order changes and order cancellations.

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 Material Requirements Planning

4.3. Inputs and outputs

Outputs
The main outputs are a number of reports with information about production orders / order issue plans, order
changes and order cancellations.

With the information from MPS, BOM and Inventory File one can, for each and every component:
▪ calculate its gross needs
▪ calculate its net requirements
▪ plan purchase/production order placements

Terms adopted from now on

Lead time – time needed for purchasing, producing or assembling an item.
• In production – orders, waiting, movements, configurations, storage, and production times.
• In purchases – time between the recognition of a necessity and the availability of the item for production.

Net Needst = Gross Needst – Stockt-1 – Planned Deliveriest

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 Material Requirements Planning

4.3. Inputs and outputs

Example

Assembling a skate:

Bill of materials (BOM) of the skate

Skate (1)

Board (1) Axles (2) Wheels (4)

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 Material Requirements Planning

4.3. Inputs and outputs

Example

Inventory records file:

Product / Component Quantities in stock Planned receptions Lead times

Skates 0 0 1 week

Boards 50 0 1 week

Axles 80 300 in week 4 1 week

Wheels 75 100 in week 3 2 weeks

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 Material Requirements Planning

4.3. Inputs and outputs

Example

Master production schedule (MPS)

Week 1 2 3 4 5 6 7
Skates 0 0 0 120 200 0 120

Week 1 2 3 4 5 6 7

Production beginning 0 0 120 200 0 120

For every skate component, determine:

▪ its net requirements;
▪ when and how much to order of it.

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 Material Requirements Planning

4.3. Inputs and outputs

Example – Excel template
Product Skate Lead Time 1 1 2 3 4 5 6 7 8 9 10 Data source
Gross Needs (GN)

0 0 0 0 0 0 0 0 0 0 TOTAL
Planned deliveries (PD) Brownish cells
have formulas
Stocks at the end of the week (S) 0 0 0 0 0 0 0 0 0 0 0
Net Needs (NNt=GNt-PDt-St-1) 0 0 0 0 0 0 0 0 0 0
Purchase or production order placement (POP) 0 0 0 0 0 0 0 0 0 0

Product Board Lead Time 1 1 2 3 4 5 6 7 8 9 10 Data source

Gross Needs (GN)

0 0 0 0 0 0 0 0 0 0 TOTAL
Planned deliveries (PD)
Stocks at the end of the week (S) 50 50 50 50 50 50 50 50 50 50 50
Net Needs (NNt=GNt-PDt-St-1) 0 0 0 0 0 0 0 0 0 0
Purchase or production order placement (POP) 0 0 0 0 0 0 0 0 0 0

Product Lead Time 1 2 3 4 5 6 7 8 9 10 Data source

Gross Needs (GN)

0 0 0 0 0 0 0 0 0 0 TOTAL
Planned deliveries (PD)
Stocks at the end of the week (S) 0 0 0 0 0 0 0 0 0 0
Net Needs (NNt=GNt-PDt-St-1) 0 0 0 0 0 0 0 0 0 0
Purchase or production order placement (POP) 0 0 0 0 0 0 0 0 0 0

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 Material Requirements Planning

4.4. Batch definition

Why?

From the estimates of the MRP system one can know the net requirements for the different
components.

But how should one plan (purchasing) order placements or production orders?

It should be noticed that issuing production orders or placing buying orders according to net
requirements may not be the most economical solution.

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 Material Requirements Planning

4.4. Batch definition

Methods for batch definition within a MRP system:

Heuristic methods (find a good feasible solution quickly)

1. Lot-for-lot
2. Part-period Algorithm
3. Silver-Meal Heuristics
4. Least Unit Cost (LUC) Method

Exact methods (find optimal solution) (not pursued in our course)

5. Mixed-integer programming
6. Dynamic programming (ex: Wagner-Whitin)

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 Material Requirements Planning

4.4. Batch definition

Heuristic methods for batch definition

1. Lot-for-lot
In every period of time, the exact quantities, for which (net) needs where identified, are produced or
purchased.

2. Part-period Algorithm
Successive period (net) requirements are aggregated in a batch until the associated holding cost is close
to the setup cost, either for production or purchasing.

Stop the calculations when the

and continue to the next batch.

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 Material Requirements Planning

4.4. Batch definition

Heuristic methods for batch definition

3. Silver-Meal Heuristics
The (net) requirements for successive periods are aggregated in one batch as long as the average cost
per period decreases.

Stop the calculations when the

and continue to the next batch.
4. Least Unit Cost (LUC) Method
The (net) requirements for successive periods are aggregated in one batch as long as the average cost
per unit decreases.

Stop the calculations when the

and continue to the next batch.

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 Material Requirements Planning

4.4. Batch definition

Example

By applying an MRP system, the net requirements of component X for the next six weeks are known:

It is known that:
▪ S (setup cost) = 100 €/ production order
▪ H (holding cost) = 0.5 €/unit/week

a) Define the production batch in order to fulfil the demand at minimum cost (compare all batch
definition heuristics studied in this course).

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 Material Requirements Planning

4.4. Batch definition

Example
POP W1 W2 W3 W4 W5 W6
Lot-For-Lot 100 120 60 40 200 250
Part-Period 280 0 0 240 0 250
Silver Meal 320 0 0 0 200 250
Least Unit Cost 220 0 300 0 0 250

Setup Cost (€) Inventory Cost (€) Total Cost (€)

Lot-For-Lot 600 0 600.00 €
Part-Period 300 220 520.00 €
Silver Meal 300 180 480.00 €
Least Unit Cost 300 280 580.00 €

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Material Requirements Planning

MRP in practice

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Material Requirements Planning

MRP in practice

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