Chapter 13

MRP: Material Requirement Planning

ERP: Enterprise Resource Planning
 MRP

Material requirements planning

Computer-based Information
System for Ordering and
Scheduling of Dependent Demand
Inventories
 Independent and Dependent Demand

Dependent demand: Demand for items

that are subassemblies or component parts
to be used in production of finished goods.
Independent Demand
A

B(4) C(2)

Dependent Demand
D(2) E(1) D(3) F(2)
Information Flow, Processes, Data Bases
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
 Inputs to MRP

(1) Master schedule: Identifying (a) which end

items are to be produced, (b) in what quantities,
and (c) when these are needed.
(2) Bill of Material : a listing of all of the raw
materials, parts, subassemblies, and
assemblies needed to produce one unit of a
product.
(3) Inventories
 Bill-of-Materials
Product structure tree: Visual depiction of the
requirements in a bill of materials, where all
components are listed by levels.

Product Structure Tree

Lead Times
Product Structure Tree
 Product Structure Tree

Level Chair
0

1 Front Leg Back

Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
 Product Structure Tree

Level Chair
0

1 Front Leg Back

Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
 Example
Determine the quantities of B, C, D, E, and F to produce one unit of A

Level A
0

1 B (2) C

E (2) F (2)
2 D (3) E

3 E (4)
 Extend Level 1

Level A
0

1 B(2) C

E (2) F (2)
2 D (3*2) E(2)

3 E (4)
 Extend Level 2

Level A
0

1 B(2) C

E (2) F (2)
2 D (3*2) E(2)

3E (4*3*2)
 Compute the Quantities

Level A
0

1 B(2) C

E (2) F (2)
2 D (6) E(2)
We need
B=2
3 E (24) C=1
D=6
E=28
F=2
 Example
Inventory Determine the quantities of
B=4 these components that we
C=10 need to order or assemble to
D=8 satisfy demand of 10A
E=60
F=0
Level A(10)
0

1 B (2) C

E (2) F (2)
2 D (3) E

3 E (4)
 Extend Level 0

Level A(10)
0

1 B (20) C (10)

E (2) F (2)
2 D (3) E

Inventory
3 E (4) B=4
C=10
 Level 1 Computations

Level A(10)
0

1 B (20- 4=16) C (10-10=0)

E (2) F (2)
2 D (3) E

3 E (4)
 Extend Level 1

Level A(10)
0

1 B (16) C (0)

3
 Extend Level 1

Level A(10)
0

1 B (16) C (0)

E (2*0) F (2*0)
2 D (3*16) E(1*16)

3 E (4)
 Extend Level 1

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2 D (48) E(16)

Inventory
3 E (4) D=8
E=60
F=0
 Level 2 Computations

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (48-8=40) E(16)

3 E (4)
 Level 2 Computations

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (40) E(16)

3 E (4)
 Extend Level 2

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (40) E(16)

3E (4*40)
 Extend Level 2

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (40) E(16)

3 E (160)
 Extend Level 2

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (40) E(16)

E=60
3 E (160) F=0

Inventory E=60
Requirement E = 160+16-60=116
 Extend Level 2

Level A(10)
0

1 B (16) C (0)

E (0) F (0)
2D (40) E(16)

3E (100)
 Assembly Time Chart

Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11
Shutter, 1 Frame (LT=2W), and 4 Wood Section (LT=1W)

Frame (2, 2)
Shutter
Assembly (1)

Wood Sections (4,1)

1 2 3
 Master Schedule; Lot for Lot Ordering

Week Beg
1 2 3 4 5 6 7 8
Inv
Quantity 100 150

Shutter Gross Requirement 100 150

LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement
100 150
Planned Order Receipts
100 150
Planned Order Releases
100 150

Shutter has two frames and four wood sections

 Frame; 2 per unit, LT=2 W
Shutter Gross Requirement 100 150
LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150
Planned Order Releases 100 150

Frame Gross Requirement 200 300

LT = 2W
Scheduled Receipts

Projected on Hand

Net Requirement
200 300
Planned Order Receipts
200 300
Planned Order Releases
200 300
 Wood Section; 4 per unit, LT=1 W
Shutter Gross Requirement 100 150
LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150
Planned Order Releases 100 150

Wood Gross Requirement 400 600

Section
Scheduled Receipts
LT = 1W 70
Projected on Hand
70 70 70
Net Requirement
Planned Order Receipts 330 600
Planned Order Releases 330 600

330 600
 Master Schedule; Lot Size Ordering; EOQ 320, 70
Shutter Gross Requirement 100 150
LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150
Planned Order Releases 100 150

Frame Gross Requirement 200 300

LT = 2W Scheduled Receipts
EOQ 320
Projected on Hand
140
Net Requirement 200 120 120 120 120

Planned Order Receipts 180

Planned Order Releases 320 320

320 320
 Lot Size Ordering: EOQ 70
Shutter Gross Requirement 100 150
LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150
Planned Order Releases 100 150

Wood Gross Requirement 400 600

Section Scheduled Receipts 70
LT = 1W
Projected on Hand 70 70 70
EOQ 70 20 20 20 20 50
Net Requirement 330
Planned Order Receipts 580
Planned Order Releases
350 630

350 630
 Practice; Example (pp 606, P2), Units Required, Lead Times
Item End B C D E F G H
LT (WK) 1 2 3 3 1 2 1 2
InvOnHand 0 10 10 25 12 30 5 0
For 20 units of the end item, how many additional units of each item is
required

Level A
0

B (2) C D(3)
1

2 E (2) F(3) G (2) E (2) H (4) E (2)

 Units Required

Level A(20)
0

B (2) C(1) D(3)

1

2 E (2) F(3) G (2) E (2) H (4) E (2)

Item End B C D E F G H
InvOnHand 0 10 10 25 12 30 5 0
 Units Required

Level A(20)
0

B (40) C(20) D(60)

1

2 E (2) F(3) G (2) E (2) H (4) E (2)

Item End B C D E F G H
InvOnHand 0 10 10 25 12 30 5 0
 Units Required

Level A(20)
0

C(20-10) D(60-25)
1 B (40-10)

2 E (2) F(3) G (2) E (2) H (4) E (2)

 Units Required

Level A(20)
0

B (30) C(10) D(35)

1

2 E (2) F(3) G (2) E (2) H (4) E (2)

 Units Required

Level A(10)
0

B (30) C(10) D(35)

1

2E (2*30) F(3*30) G (2*10) E (2*10) H (4*35) E (2*35)

 Units Required

Level A(10)
0

B (30) C(10) D(35)

1

2 E (60) F(90) G (20) E (20) H (140) E (70)

Item E F G H
InvOnHand 12 30 5 0
 Units Required

Level A(10)
0

B (30) C(10) D(35)

1

2 E (60-12) F(90-30) G (20-5) E (20) H (140) E (70)

 Units Required

Level A(10)
0

B (30) C(10) D(35)

1

2 E (48) F(60) G (15) E (20) H (140) E (70)

Item End B C D E F G H
Required 20 30 10 35 138 60 15 140
 Example (pp 673, P2); Lead Times

A(1)

Item End B C D E F G H
LT (WK) 1 2 3 3 1 2 1 2
Required 20 30 10 35 138 60 15 140
 Lead Times

A(1)

B C D

Item B C D E F G H
LT (WK) 2 3 3 1 2 1 2
Required 30 10 35 138 60 15 140
 Lead Times

A(1)

B (2) C(3) D(3)

 Lead Times

A(1)

B (2) C(3) D(3)

E F

G E H E

Item E F G H
LT (WK) 1 2 1 2
Required 138 60 15 140
 Lead Times

A(1)

B (2) C(3) D(3)

E (1) F(2)

G (1) E (1)H (2) E (1)

 Lead Times

A(1)

B (2) C(3) D(3)

E (1) F(2)

G (1) E (1) H (2) E (1)

 Master Schedule; Lot for Lot Ordering

Week Beg
1 2 3 4 5
Inv
Quantity 120

Product X Gross Requirement 120

LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement
120
Planned Order Receipts
120
Planned Order Releases
120

Part X (LT=1) is formed by three Part A (LT=1)

Part A is formed by two Part B (LT=2)
 Part A; 3 per unit, LT=1 W
Product X Gross Requirement 120
LT = 1W
Scheduled Receipts

Projected on Hand

Net Requirement 120

Planned Order Receipts 120
Planned Order Releases 120

Part A (3) Gross Requirement 360

LT = 1W
Scheduled Receipts 60
Projected on Hand 60 60 60
Net Requirement
300
Planned Order Receipts
300
Planned Order Releases
300
 Part B; 5 per unit, LT=2 W
Part A (3) Gross Requirement 360
LT = 1W
Scheduled Receipts 60
Projected on Hand 60 60 60
Net Requirement
300
Planned Order Receipts
300
Planned Order Releases
300

Part B(2) Gross Requirement 600

LT = 2W
Scheduled Receipts 100
Projected on Hand 100 100 100
Net Requirement
500
Planned Order Receipts
500
Planned Order Releases
500
 Need More Practice ?

Solved Problems 1 and 2 on pages 602-604.

First solve the problem yourself.
Then look at the solution.
 MRP Secondary Reports
• Performance-control reports
• Planning reports
• Exception reports
 Other Considerations

• Safety Stock
• Lot sizing
– Lot-for-lot ordering
– Economic order quantity
– Fixed-period ordering
– Part-period model
 Capacity Planning

Capacity requirements planning: The process

of determining short-range capacity requirements.
Load reports: Department or work center reports
that compare known and expected future capacity
requirements with projected capacity availability.
Time fences: Series of time intervals during which order
changes are allowed or restricted.
 MRP Planning

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity
 MRP in Services
• Food catering service
– End item => catered food
– Dependent demand => ingredients for
each recipe, i.e. bill of materials
• Hotel renovation
– Activities and materials “exploded” into
component parts
 Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time
 Requirements of MRP
• Computer and necessary software
• Accurate and up-to-date
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data
 MRP II
• Expanded MRP with and emphasis placed
on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
 MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
 ERP
• Enterprise resource planning (ERP):
An expanded effort to integrate
standardized record-keeping that will
permit information sharing throughout
the organization