Material Requirement Planning (MRP) and Capacity Requirement Planning (CRP) Authored by DR Adil

Material Requirement Planning
(MRP) and
Capacity Requirement Planning
(CRP)
Authored by Dr Adil,
Shailesh J. Mehta School of Management, IIT Bo
mbay
Manufacturing Resource Planning- MRP-II
Input from Higher Level Business Plan
CAPACITY PLAN
PLANNING MATERIAL PLAN (RESOURCE USE PLAN)
(PRODUCTION
HORIZON OUTPUT LEVEL)
Sales Planning
Master Plan
Long Term
Production Resource Requirement
Demand Planning Plan
Aggregate Planing
Management
Master Production Rough Cut Capacity

Scheduling (MPS) Planning (RCCP)
Medium Term
Material Requirement Capacity Requirement
Planning (mrp) Planning (CRP)
Execution Plan
Production Activity
Short Term Control/Shop Floor Ctrl
Hierarchy of Planning in MRP-II

Agenda
• Production documents
– Assembly Chart, BOM, Routing
• MRP: Introduction
• Basic Logic of MRP
• MRP process in more detail
• Problems in MRP
• CRP
Dr. G. K. Adil, IIT Bombay

Production Documents
Workable instructions to make product
-Specify the components needed to produce the product, the
sequencing of production tasks
-Necessary equipment and tooling
1. Assembly Drawings and Assembly chart
- Specify how components fit together
2. Bill of Material
-Components needed
3. Route sheet
-Specifies sequence of processing operations and resources
needed
-Job descriptions and procedures
1a. Assembly Drawing
Shows exploded view of product
Head Neck
End
Cap
Handle
1b. Assembly Chart
• A schematic model that defines how parts go
together, the order of assembly, and the overall
structure of the product.
• This chart is ideal for getting a bird’s eye view of
the process for producing most assembled
products.
• This chart is sometimes called gozinto chart.
Example: How Big Mac hamburger is assembled?

Example: Assembly Chart
Sesame seed top bun
Assembly Chart
Beef patty SA for a Big Mac
Salt
Cheese
Lettuce
First-layer assembly
Sauce
Onions
Middle bun
Beef patty SA
Salt
Cheese
Lettuce Second-layer assembly
Sauce
Onions
Pickles
Bottom bun
Wrapper Completed Big Mac
7
2. Bill of Material: Lists components,
quantities & where used
Example: The BOM of the telephone
LEVEL 0 Telephone
LEVEL 1 Base Handset
Circuit Circuit
LEVEL 2 Casing Cable Casing Cord
board boards
LEVEL 3 Lead Plug EarpieceMouthpiece
8
2. Bill of Materials for the telephone
LEVEL O LEVEL 1 LEVEL 2 LEVEL 3 QUANTITY
Telephone
Base 1
Casing 1
Cable 1
Lead 1
Plug 1
Circuits 1
Handset 1
Casing 1
Circuit boards 1
Earpiece 1
Mouthpiece 1
Cord 1
9
3. Route Sheet
• Lists all operations in sequence, timings,
machine/resources to make a component/assembly/final
product
4
1 2 3
Route Sheet for Bracket

Sequence Machine Operation Setup Operation
Time Time/Unit
1 Shear # 3 Shear to 5 .030
length
2 Shear # 3 Shear 45° 8 .050
corners
3 Drill Drill both 15 3.000
press holes
4 Brake Bend 90° 10 .025
press
In-Class Exercise
Lab 1: Select a common product (e.g., Table Tennis Bat)
Consider an assembly drawing of the product.
2- rubber
surfaces
1-Main piece
2 handle facings
11
In-Class Exercise
Select a common product (e.g., Table Tennis Bat) and
carry out the following exercise.
Q1. Prepare an assembly chart for the product.

Equipment and materials: Specify the type of equipment
and materials you would need to manufacture the product
from receipt of raw material to packaging for shipping.
Q2. Develop bill of material
Q3. Develop a route sheet to make the product. Making
reasonable assumptions about times and distances where necessary.
12
In-Class Exercise
Q1 Prepare an assembly chart for the product.

Equipment and materials: Specify the type of
equipment and materials you would need to manufacture
the product from receipt of raw material to packaging for
shipping.
In-Class Exercise
Q1 Specify Equipment and materials.
Equipment and materials

(transforming and transformed resources)
Equipment: band saw, hand saws, circular saw,
sanding machine, lathe, glue press, hand truck
Materials: wood, plywood, rubber for paddle

surface, glue, lacquer, plastic bags for wrapping,
shipping boxes, and tape.
In-Class Exercise
Q1 Prepare an assembly chart for the product.
15
In-Class Exercise
16
In-Class Exercise
TT Bat
WoodAssembly (1)
Main Piece (1) Handle (2) Rubber pads (2)

In-Class Exercise
Q3. Develop a route sheet to make the

product. Making reasonable assumptions about
times and distances where necessary.
In-Class Receive rubber
Receive plywood
for main piece
Receive wood
for handle
Exercise Inspect Inspect Inspect
To Circular
To saw To hand saws
Saws
Cut from
Cut to size Cut handle
plywood
Wait for Cut into

To glue
main piece two pieces
To glue
Q3. Wait for

main piece
Develop Glue
a route Inspect
sheet to Lacquer
make the
Dry
product.
Glue rubber
surfaces
Inspect
To packing
Step 1 Put in
plastic bags
Flow Process Chart Box for

shipment
To finished
goods 19
In-Class Exercise

(Modified as per route sheet))
TT Bat
WoodAssembly (1)
Main Piece (1) Handle (2) Rubber pads (2)
? ?
? ?
Plywood Wood
(???) (6”)
20
In-Class
Part Name: Handle Facing
Exercise Operati Operation Dept. Setup Pieces Tools
on description time per
number hour
15 Cut to size Saw 0.25 400 Circular saw
16 Cross cut diameter Saw 0.25 100 Circular saw
Q3. Part Name: Main Piece

Develop Operati Operation Dept. Setup Pieces Tools
on description time per
a route number hour
sheet to 10 Cut to size Saw 1.0 100 Band saw
make the
product. Part Name: WoodAssembly
20 Glue handle Glue 0.5 50 Clamps
facing
Step 2 21 Lacquer Glue 0.3 100 Paint brush
Process
route
sheets 21
CAPACITY PLAN
(PRODUCTION
Sales Planning
Master Plan
Long Term
Aggregate Planing
Management

Medium Term
Execution Plan
Production Activity

Independent and Dependent Demand
Independent Demand
(MTS Strategy)
A Dependent Demand
B(4) C(2)
D(2) E(1) D(3) F(2)
Independent demand is uncertain. (demand needs to be estimated)

Dependent demand is certain. (Requirement can be calculated)
Characteristic
1
Demand Characteristics of
Dependent and Independent Demand Items
Independent demand Dependent demand
100 x 1 =
100 tabletops
Planned Lot Quantity (100 tables/wk) 100 x 4 = 400 table legs
Continuous demand
Characteristic
Discrete demand (Lumpy)
400 –
400 –
2
No. of table legs
No. of tables
300 –
300 –
200 –
200 –
100 –
100 –
1 2 3 4 5
Week M T W Th F M T W Th F
24
Dr. G. K. Adil, IIT Bombay
Characteristic
3 Need for Coordination:
The simultaneous probability problem
• When components are ordered independently with an
order point system, the probability that all will be in stock
at the same time is much lower than the probabilities for
individual components A
B(2) C(1)
• Computation:
If Si = Prob. of component i being available (service
level of component i)
Then, Pn = Prob. that n components are in stock
simultaneously is
Pn = S1 x S2 x S3 … Sn 25
Characteristic
3 Need for Coordination:
The simultaneous probability problem
(cont.)
• Example:
End Item
1 2 3
S1 = .9 S2 = .9 S3 = .9
P3 = .9 x .9 x .9 = .729
= Prob. that all 3 components will be available at any given time to
build the end item
26
Characteristic Need for Coordination:
3
Probabilities of simultaneous
availability of components
Number of Service level of each compnent
component items 90% 95%
1 .900 .950
2 .810 .902
3 .729 .857
4 .656 .814 Probabilities of
5 .590 .774
6 .531 .735
simultaneous
7 .478 .698 availability of
8 .430 .663 components
9 .387 .630
10 .348 .599
15 .206 .463
20 .121 .358
25 .071 .277
27
Dependent vs. Independent
Demand
Material with Material with
Independent Demand Dependent Demand
Demand Source Company Customers Parent Items
Material Type Finished Goods Components and Raw

(in MTS environment) Material
Method of Forecast [& Booked Requirement can be
Estimating Demand Customer Orders] Calculated
(from parent’s demand)
Safety Stock Required Often not required.
(demand forecast subject to Required only when supply
error) is subject to uncertainty
Nature of Variation Tends to be Continuous Tends to be Lumpy

(why?) (why?)
Planning Method ?? ??
Planning with Order Point System
Production
Order Qty – Component is ordered
End Item
Model at time A, when the

inventory level of the
ROP component hits reorder
point, R
Safety Stock – So, the component is
received at time B.
EOQ Model – However, the
component is actually
Component
A B C needed at time C, not B.

So, the inventory
holding cost incurred
ROP between time B and C is
a wastage.
Lead
Time
Dependent Demand
Planning with an MRP System
Production
Order Qty – We shall see in this
End Item
Model lesson that given the

production schedule
ROP of the finished goods
and some other
Safety Stock information, it is
possible to predict the
exact time, C when
B
Better the component will be
Component
A C alignment of required. Order is

qty and timing placed carefully so
of dependent that it is received at
demand time C. MRP
(component) precisely does this.
Lead item. – MRP accommodates
Time 3 characteristics
mentioned before.
Dependent Demand
Dependent demand items
TOP STORAGE
TABLE ASSY &

LEG STORAGE FINISH SHOP
Process-AF1
Process-L3
Process-AF2
Scheduled
Process-L2 Receipt
Process-AF3
Process-L1
TABLE
WOOD LEG PRODUCTION (finished item)
STORAGE SHOP
MPS for Table
1 2 3 4 5 6
20 0 30 0 10 0
MATERIAL REQUIREMENTS PLANNING [MRP]
• Before MRP came most production control systems revolved around

some variant of statistical reorder points. Essentially, this means that
production of any part, finished product or component, was triggered by
inventory for that part falling below a specified level.
• Joseph Orlicky and others found that reorder point method is better
suitable for independent demand. “Dependent demand is different from
independent demand. Production to meet independent demand should be
scheduled so as to explicitly recognize the linkage to production to meet
dependent demand. MRP does this.” Furthermore, dependent demand
tends to be lumpy unlike independent demand.
• Producing a product made of multiple components requires significant

coordination to ensure that component parts are available when they are
required for production. MRP derives demand for components,
subassemblies, materials, etc., from demand for and production
schedules of parent items.
Capturing Relationships of
Dependent Items to End Item:
Product Structure Tree
Clipboard
Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)
Product Structure Tree/ Bill of
Materials
Clipboard Level 0
Pressboard Clip Ass’y Rivets

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

(1) (1) (1) Level 2
(1)
Indented Bill of Material
LEVEL ITEM UNIT OF MEASURE QUANTITY

0---- Clipboard each 1
-1--- Clip Assembly each 1
--2-- Top Clip each 1
--2-- Bottom Clip each 1
--2-- Pivot each 1
--2-- Spring each 1
-1--- Rivet each 2
-1--- Press Board each 1
Schematic of MRP
Scheduled MPS/
BOM Inventory
External
Status receipts
demand INPUT
mrp:
Netting
Lotsizing MRP Process
Time Phasing
BOM Exploding
Planned Change Exception

order notices notices OUTPUT
release
Basic MRP Processes
1. Netting (gross requirements minus
available supplies)
2. Lot sizing (production in economical or
convenient quantity)
3. Time-phasing requirements
(production/procurement takes finite time)
4. Exploding the bill of material
(calculating the requirements of dependent
items)
TOP STORAGE
TABLE
TABLE ASSY &
Process-AF1
LEG(4) TOP(1)
Process-L3
Process-AF2
WOOD(3ft) Scheduled
Process-L2 Receipt
Process-AF3
Process-L1
LEG PRODUCTION
WOOD SHOP TABLE
STORAGE (finished item)
MPS for Table
1 2 3 4 5 6
20 0 30 0 10 0
The Basic MRP Record
• Anticipated usage of demand for each period
(GROSS REQUIREMENTS)
• Existing replenishment orders at the beginning of
periods (SCHEDULED RECEIPTS or Work-in -
progress)
• The current and projected inventory status at the end
of period (PROJECTED ON HAND and
PROJECTED AVAILABLE BALANCE)
• Planned replenishment orders for the beginning of
each period (PLANNED ORDER RELEASES or
New Orders)
The Basic MRP Matrix
ITEM NAME OR NO. LLC - LOW LEVEL CODE
LOT SIZE- QTY MADE IN Period
LT - LEAD TIME
0 1 2 3 4 5 6
Gross Requirements Derived from MPS or planned order

releases of the parent
Scheduled Receipts On order and scheduled to be received
Projected on Hand Anticipated quantity on hand at the end of
the period. Does not reflect planned order,
Beg. only Scheduled receipt)
Inv
Projected Available Anticipated quantity available at the end of
the period (includes planned order)
Net Requirements Gross requirements minus available
supplies
Planned Order Receipts When orders need to be received
Planned Order When orders need to be placed to be
Releases received on time
School Mate Products
Product Structure Record
Clipboard Level 0
Pressboard Clip Ass’y Rivets

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

(2) (3’) (1) (4 oz) Level 1
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
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
Projected Available
Net Requirements
Planned Order Receipts
Planned Order Releases

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115
Projected Available 115
Net Requirements

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 -100
Projected Available 115 20 -100
Net Requirements 100 100 100
Dr. G. K. Adil, IIT Bombay 45


LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected Available 115 20 0
Planned Order Receipts 100
Planned Order Releases 100

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected Available 115 20 0 -100
Planned Order Receipts 100
Planned Order Releases 100

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 -100 - -
Projected Available 115 20 0 0 0
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100
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
Projected on Hand 20 20 -40 - - -
Projected Available 20 20 10 10 0 0
Planned Order Receipts 50 50
Planned Order Releases 50 50
Following the same logic, the Lapdesk mrp matrix is
completed as shown
School Mate Products (BOM- explosion)
LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Projected Available
Net Requirements
School Mate Products (BOM- explosion)
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: PRESSBOARD LLC: 0 x2 x2 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Projected Available
Net Requirements
LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Projected on Hand 150 50 -50 - - -
Projected Available 50 50 0 0 0
Planned Order Receipts 100 150 100
TOP STORAGE
TABLE
TABLE ASSY &
Process-AF1
LEG(4) TOP(1)
Process-L3
Process-AF2
WOOD(3ft) Scheduled
Process-L2 Receipt
Process-AF3
Process-L1
LEG PRODUCTION
WOOD SHOP TABLE
STORAGE (finished item)
MPS for Table
1 2 3 4 5 6
20 0 30 0 10 0
Netting, Lot sizing, BOM explosion
procedures in more detail
NETTING:
Netting provides two important functions:
(1) It computes net demand after subtracting the
available supplies (e.g. OH and SR to gross
requirements in initial periods) and
(2) It adjusts receipts by expediting/de-expediting
orders.
Assumption: We adjust available supplies against

gross requirements in the following order:
1) On-hand inventory [physical inventory available at time 0],
2) Scheduled receipts (SR) [that is work-in-progress], and
finally
3) Planner order release (POR) [Orders planned but execution
not yet started].
NETTING: Adjusted scheduled
receipt (SR)
Part A 1 2 3 4 5 6 7 8
Gross requirements 15 20 50 10 30 30 30 30
Scheduled receipts 10 10 100
Adjusted SR 20 100
Projected on- 20 5 5 55 45 15 -15 - -

hand
Projected Available 5 5 55 45 15 -15
Net requirement 15 30 30
Planned order receipts

Lot Sizing in MRP
• Determining the lot size (order quantity or
production quantity) of an item
• Some of the commonly used lot-sizing algorithms
are discussed. (We get the core ideas from inventory
Management)
– Lot-for-Lot.
– Fixed Order Quantity such as EOQ
– Fixed Order Period (FOP) or Periodic Order Quantity (POQ).
– Least Cost Heuristics
– Part-Period Balancing
– Wagner-Within
– Silver-Meal Heuristic
Lot Sizing Rule: LOT-FOR-LOT
• Simplest lot-sizing rule
• Make as much as you need each period
– Minimizes total holding cost
– But, results in maximum total setup cost

Period 1 2 3 4 5 6 Total
Demand 15 70 40 10 15 90
Projected Available Balance 0 0 0 0 0 0 0
Net Requirements 15 70 40 10 15 90
Lot Size (Planned Order Receipt) 15 70 40 10 15 90
Setup Cost 90 90 90 90 90 90 540
Holding Cost 0 0 0 0 0 0 0
Total Cost 540
Lot Sizing Rule: Fixed Order
Quantity (FOQ)
A second simple policy is to order a predetermined
quantity. This may be EOQ or container size or a
preferred quantity.
• Economic Order Quantity (EOQ): A continuous time model
applied to discrete demand
– Original model assumes constant and continuous demand
– Here use average demand for EOQ formula (240/6=40)
Period 1 2 3 4 5 6 Total
Net Requirement 15 70 40 10 15 90 240
2(40)(90)
EOQ   120
0.50
Lot Sizing Rule: Fixed Order
Period (FOP) or Periodic Order
Quantity (POQ).
If you are going to produce in period t, then
produce all the demand for period t, t+1, …, t+P-1,
where, P is a parameter or policy. If P =1, the
policy is lot-for-lot.
• POQ modifies the EOQ for discrete demand
– Assumes a single best reorder interval (number of
periods covered by a single lot)
EOQ 120
POQ   3
D 40
Lot Sizing in mrp
• Least total cost (LTC) heuristic:
– Notice that at EOQ (continuous model), total holding cost = setup cost
– For discrete case, this heuristics achieves it by combining requirements of
future periods until carrying costs approximate to ordering costs
• Least Unit Cost (LUC) heuristic.
– It selects the order quantity that minimizes the average unit cost [setup +
holding cost per item]of each item being produced or procured.
Period 1 2 3 4 5 6 7 8 9
Net Requirement 15 45 25 15 20 15
There is no requirement in period 1 so there will be no production. The choices for

period 2 are 15 (produce for period 2), 60 (produce for periods 2 and 3), 85 (produce
for periods 2, 3 and 6), and so on
Quantity to Setup For LTC heuristic: For LUC Heuristic
be produced Cost Inventory Carrying Cost At $2 per Unit cost ($ per unit)
in Period 2 part/period
15 $150 15x0x$2= 0x$2= $0 (150+0)/15 = 10
15+45=60 $150 45x1x$2 = 45x$2 = $90* (150+90)/60 =4**
15+45+25=85 $150 45x1x$2+25x4x$2 = 145x$2=$290 (150+290)/85 = 5.18
• Since $90 is closest to $150 of the options available, we will make 60 units in period 2 based
on LTC.
** Least UTC is $4. Select Q*=60.
Lot Sizing in mrp
• Part-Period Balancing (PPB).
– This approach attempts to balance the inventory cost and setup cost. Equivalent to LTC, but makes
calculation slightly easy.
– Part-Period: Product of number of parts in a lot and number of periods they are carried. For example, one part
is carried through 10 periods, 5 parts carried 2 periods or 10 parts carried one period, all represent 10 part-
periods.
– Part-period balancing seeks to make the carrying cost as close to the setup cost as possible. Calculation is
simpler than LTC. Consider the following example.
Period 1 2 3 4 5 6 7 8 9
Net Requirement 15 45 25 15 20 15
There is no requirement in period 1 so there will be no production. The choices for period 2 are 15 (produce for
period 2), 60 (produce for periods 2 and 3), 85 (produce for periods 2, 3 and 6), and so on
Quantity for Period 2 Setup Cost Part-Periods Inventory Carrying Cost
At $2 per part/period
15 $150 0 $0
15+45=60 $150 45x1 =45 $90
15+45+25=85 $150 45+25x4 = 145 $290
Since $90 is closest to $150 of the options available, we will make 60 units in period 2.
BOM Explosion
Let, there be two end items A and B with the BOM shown as
follows. MRP procedure is applied level by level in BOM.
A Level 0 B
P100 (2) Level 1 P300 (1) P500 (1)
P300 (1) Level 2 P100 (1)
Level 3 P300 (1)
There are five Parts in the two BOMs put together

A, B, P100, P300, P500
In which order we should process MRP?
Note that the gross requirement of part P100 comes from A, P500. Similarly, the
computation of total gross requirements for P300 will require explosion of P100
and Part B and P500 to be completed and so on
BOM explosion: Low Level Coding
(LLC)
• In order to process all common parts at the
same time low level coding is done.
• Determines order of MRP calculations
– Each BOM level is assigned a number
– Each part is assigned the number of the lowest
level at which it appears in any BOM
– mrp record processing calculates plans for level 0 first,
then level 1, etc. . . . This ensures that all gross
requirements have been passed down to a part
before its MRP record is processed.
• The result is planning of component parts
coordinated with the needs of all higher level
part numbers.
BOM explosion: LLC
A Level 0 B
P100 (2) Level 1 P300 (1) P500 (1)
P300 (1) Level 2 P100 (1)
Level 3 P300 (1)
Part Appears at LLC

Part A 0 0 Order of
Part B 0 0 processing:
Part A/Part B,
P100 1, 2 2 P500, P100 and
P300 1, 2, 3 3 P300
P500 1 1
(A low level code (LLC) is used to ensure that this order is respected).
BOM explosion: Data
Inventory, scheduled receipts, lead-time and
lot sizing policy for components are as
follows.
Part Current SR due SR qty. Lot-sizing Lead Time
Number on- rule
hand
Part A 20 wk1, wk2, wk4 10, 10, 100 FOP, 2 weeks 2 weeks
Part B 40 FOP, 2 weeks 2 weeks
P100 40 Lot-for-lot 2 weeks
P300 50 week 2 100 Lot-for-lot 1 week

P500 40 Lot-for-lot 4 weeks
BOM explosion: MRP of Part A
• Assume P =2 and lead-time = 2 weeks for part A.
Part A, FOP=2, LT=2 1 2 3 4 5 6 7 8

Scheduled receipts 10 10 100
Adjusted SR 20 100
Projected on-hand 20 5 5 55 45 15 -15 - -
Projected Available 5 5 55 45 15 30 0 0
Net requirement 15 30 30
Planned order receipts 45 30
Planned order releases 45 30
BOM Explosion: Order of
processing
The gross requirements for P100 (to go into part A) can
now be calculated from the planned release of part A.
Part P100 1 2 3 4 5 6 7 8
Gross requirements 90 60
Let the following data be available. MPS for part B.
Part B 1 2 3 4 5 6 7 8
Demand (gross req.) 10 15 10 20 20 15 15 15
BOM explosion
Part B, LT= 2, FOP=2 1 2 3 4 5 6 7 8
Scheduled receipts
Adjusted SR
Projected on-hand 40 30 15 5 -15 - - - -
Net requirement 15 20 15 15 15
Planned order receipts 35 30 15
Planned order releases 35 30 15
Part P500, LT= 4, L4L 1 2 3 4 5 6 7 8

Gross requirements 35 30 15
Scheduled receipts
Adjusted SR
Net requirement 25 15
Planned order releases 25* 15
* indicates a late start
BOM explosion
Part P100, LT=2, L4L 1 2 3 4 5 6 7 8
Required from A 90 60
Required from P500 25 15
Gross requirements 25 15 90 60
Scheduled receipts
Adjusted SR
Part P300, LT=1, L4L 1 2 3 4 5 6 7 8
Required from B 35 30 15
Required from P100 90 60
Scheduled receipts 100
Adjusted SR 100
MRP Outputs
Outputs contain, change notice, planned releases and exception notices.
Transaction Part Old due date/ New Due Date/ Quantity Notice
Num or Release or Recept
ber Date Date
Change notice A 1 2 10 Defer
Change notice A 4 3 100 Expedite
Planned order release A 4 6 45 OK
Planned order release A 6 8 30 OK
Planned order release B 2 4 35 OK
Planned order release P100 2 4 90 OK
Planned order release P500 1 4 25 Late

Problems in MRP
• Capacity Infeasibility
– The MRP assumes that the lead-time is
fixed. Lead-time depends upon the load in
the plant. This can create problem if there
is not enough capacity in the plant. One
way to handle this problem is to ensure at
MPS stage that there is enough capacity
through a rough-cut capacity planning
(RCCP) and also at MRP stage through
capacity requirement planning (CRP).
– MRP II often contains these two modules
RCCP and CRP.
Problems in MRP
• System Nervousness
– Nervousness in MRP occurs when a small
change in the master production schedule
results in a large change in planned order
releases. This can lead to strange effects.
For instance, as we demonstrate with the
following example, it is actually possible
for a decrease in demand to cause a
formerly feasible MRP plan to become
infeasible. Assume that part A (level 0)
needs one unit of part B (level 1).
Nervousness in MRP
Item A, LT=2, FOP=5 1 2 3 4 5 6 7 8
Scheduled receipts
Adjusted SR
Projected on-hand 28 26 2 -1 - - - - -
Projected available 26 2 13 8 7 4 0 0
A feasible MRP
Item B, LT=4, FOP=5 1 2 3 4 5 6 7 8

Adjusted SR 14

Projected available 2 2 2 2 2 0
Net requirement 48
Planned order receipts 48
Planned order releases 48
A feasible MRP
Nervousness in MRP
Item A, LT=2, FOP=5 1 2 3 4 5 6 7 8
Gross requirements 2 23* 3 5 1 3 4 50
Scheduled receipts
Adjusted SR
Projected available 26 3 0 58 57 54 50 0
*Demand reduced from 24
Item B, LT=4, FOP=5 1 2 3 4 5 6 7 8

Gross requirements 63
Adjusted SR 14
Projected on-hand 2 2 -47 - - - - - -
Projected available 2 0
Net requirement 47
Planned order releases 47*
*indicates a late order
Solution to Nervousness in MRP
(1) use different lot-sizing rules at different level in Bills.
(2) Freeze plan by defining time fences. (3) Use Firmed Planned Orders (see below)
Item A, LT=2, FOP=5 1 2 3 4 5 6 7 8
Gross requirements 2 23* 3 5 1 3 4 50
Scheduled receipts
Adjusted SR
Firm Planned Order 14F
Projected on-hand 28 26 3 14 9 8 5 1 -49
Net requirement 49
Planned order receipts 14F 49
Planned order releases 14F
*Demand reduced from 24, Use FPO
Item B, LT=4, FOP=5 1 2 3 4 5 6 7 8

Adjusted SR 14

Net requirement 47
A feasible MRP plan using FPO

SAFETY STOCK
• Guards against quantity uncertainty
• Reorder when inventory drops below the desired
safety stock level
– SS -- safety stock level
– PAB -- projected available balance
• If SS = 0, reorder when PAB < 0
• If SS > 0, reorder when PAB < SS
Let: EOQ = 50, LT = 1 period, SS = 10
Period 1 2 3 4 5 6
Gross Requirements 10 60 30 50 20 20
Projected On Hand 20 10 0
Projected Available Balance 10 50 20 20 50 30
Net Requirements 0 50 30 50 20 20
Planned Order Receipts 0 50 0 50 50 0
Planned Order Releases 50 0 50 50 0 0
SAFETY STOCK
• How to set SS level? Suppose there are quality issues and to
compensate for that, SS is required.
# parts
scrapped SS = 10
0 Mean= 10 20
Let us assume, EOQ = 100 Then revised MRP Lot = 100 + 10
SS = (20-10)=10
NOTE: If there is variability in Lead Time, Safety Stock may be built in

there also
Lead Time = Mean Lead Time + Safety Lead Time
Capacity Requirement
Planning (CRP)
CAPACITY PLAN
(PRODUCTION
Sales Planning
Master Plan
Long Term
Aggregate Planing
Management

Medium Term
Execution Plan
Production Activity

CRP
• The process of determining how much labor
and machine resources are required to
accomplish the task of production
• CRP provides a more detailed capacity check
on mrp-generated plans than RCCP.
TOP STORAGE
TABLE ASSY &

Process-AF1
Process-L3
Process-AF2
Scheduled
Process-L2 Receipt
Process-AF3
Process-L1
TABLE
WOOD LEG PRODUCTION (finished item)
STORAGE SHOP
TABLE101
TABLE101 Level 0
TOP_OVAL Leg_Circular
(1) (4) Level 1
Wood_1
(3 ft) Level 2
MRP Records
Part:TABLE101, LT= 2, FOP=2 1 2 3 4 5 6 7 8
Adjusted SR 20
Planned order receipts 35 30 15
Planned order releases 35 30 15
Part TOP_OVAL, LT= 2, L4L 1 2 3 4 5 6 7 8

Scheduled receipts
Adjusted SR
TABLE101
Level 0
TABLE101
ROUTING-1
OPN RES SETUP RUN …….
TIME TIME
AF1 Manual 30 min 30 min
AF2 MC101 60 min 40 min
AF3 MC102 40 min 20 min
TOP_OVAL Leg_Circular
(1) (4) Level 1
Wood_1
(3 ft) Level 2
Objectives of CRP
• Main objective: Validate Material Plan
• Other (Indirect) objectives of CRP
– Help Control level of WIP
– Plan production lead times
– Help Prevent bottlenecks
– Plan available capacity
• Manpower – People/Skills
• Subcontracting
• Machines
CRP Process
• Determine the capacity available
• Translate the released and planned orders into
capacity required
• Sum up capacities required for each work
center (i.e., calculate load)
• Resolve differences between available capacity
and required capacity (or load)
Definitions
• Work Center
– A specific production facility, consisting of one or
more people and/or machines with identical
capabilities, which can be considered as one unit
for purpose of CRP
• Manufacturing Order
– May be open orders, already in process, or
planned orders such as those scheduled by MRP
Load
• Translates the orders/dates, given in units,
into time required at each work center in
each time period
Determining Capacity Available
Capacity available is
The capability of a system or resource to produce a
quantity of output in a particular time period
—APICS Dictionary
Available capacity can be calculated or measured
To calculate available capacity, need to know

– Available time
– Utilization
– Efficiency
Available Time
•Available time depends on the number of
machines/workers, and hours of operation
Available time= Number of machines (or number

of workers) × hours of operation
What is the weekly available time for a work

center that has four machines and works eight
hours a day for five days a week?
Utilization
Utilization: Percentage of the time that the
work center is active
Hours actually worked
x 100%
Available hours
Example: Work center is available 120 hours a

week, but actually produces goods for
90 hours
90
 100% = 75% utilization
120
Efficiency
Efficiency: Actual output rated against standard
output Standard hours of work produced
x 100%
Hours actually worked
Example: A work center is utilized 100 hours per

week and produces 110 standard hours of work
110
= x 100% = 110% efficiency
100
Problem
A work center produces 90 standard hours of work in
one week. The hours scheduled are 80, and 70 are
actually worked. Calculate the utilization and
efficiency of the work center.
Utilization =
Efficiency =
Rated Capacity
Rated capacity = Available time x utilization x
efficiency
Example: A work center consists of three machines

and is operated eight hours a day for five
days a week. Past utilization has been
75%, and efficiency has been 110%.
Available time =
Rated capacity =
Problem
A work center consists of six machines that are
available 16 hours per day for five days a week.
Utilization is 80%, and efficiency is 110%. What is the
rated weekly capacity?
Rated weekly capacity =

Input/Output of CRP
Schedule of Work Order
Planned Factory Status
Work Center
Order Releases
Data
Capacity
Routing Data Requirement
Planning
(CRP)
Work Center Revised Schedule of Planned

Load Report Factory Order Releases
Shop Calendar
Lead-Time Elements
Lead Time
Queue Setup Run Wait Move
Queue Time waiting before operation begins

Setup Time getting ready for operation
Run Time performing operation
Wait Time waiting after operation ends
Move Time physically moving between operations
Example
BOM: Part A requires 1 unit of Part B.
Routing: Conversion of Part B to Part A required the following steps

(operations).
Operations OP1 OP2 OP3 OP4
Work WC-1 WC-10 WC-9 WC-6

Center

Planned Orders for Part A:
Day of release 1 2 3 4 5
Planned qty. of Part A 10 30 20 20 10
Order Name O1 O2 O3 O4 O5

Example
Work Center Data:
Work Q Times Run Time Capacity/ Seup
Center per Part Day Time
WC-1 0 Hrs 1 Hr/Part 20 Hrs. 0
WC-2 1 Hr. 1.5 16 Hrs. 2 Hr.

Hr/Part
.

WIP Status
Job 1: 30 Units of A Just Started OP1
Job 2: 20 Units of A Finished OP3
Example Day 1 2 3 4 5
Qty 10 30 20 20 10
A
Order ID O1 O2 O3 O4 O5
OP3 WC6
Day 1 2 3 4 5
Job 1
(20 Units) OP3 WC9 Job1 20h 10h
O1 10h
O2 20h 10h
OP2 WC10
O3 20h
O4 20h
Job 1 OP1 WC1 O5 10h
(30 Units) (0hSetup
1 hr/part
B run time)
CAP=20h/day

Projection of Load at WC-1 (Infinite

Forward Loadinng )
Order Name Qty Day1 Day2 Day3 Day4 Day5 Day6
Job 1 (WIP) 30 20 h 10 h
Order1 10 10 h
Order2 30 20 h 10 h
Order3 20 20 h
Order4 20 20 h
Order5 10 10 h
Total Load 30 h 30 h 30 h 20 h 10 h 0h
Capacity 20 h 20 h 20 h 20 h 20 h 20 h

CRP Load Profile
30
Available capacity
Load 20
10
1 2 3 4 5 6
Day
Limitations of CRP
• In spite of its hopeful introduction and
worthy goals, there are fundamental
problems with CRP.
– Enormous data required.

– It offers no remedy to an overloaded situation.
– Procedure uses infinite loading, it is not very
accurate

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Material Requirement Planning

Master Production Rough Cut Capacity

Hierarchy of Planning in MRP-II

Dr. G. K. Adil, IIT Bombay

• This chart is sometimes called gozinto chart.

Example: How Big Mac hamburger is assembled?

LEVEL 1 Base Handset

LEVEL 3 Lead Plug EarpieceMouthpiece

LEVEL O LEVEL 1 LEVEL 2 LEVEL 3 QUANTITY

Route Sheet for Bracket

Q1. Prepare an assembly chart for the product.

Q1 Prepare an assembly chart for the product.

Q1 Specify Equipment and materials.

Equipment and materials

Materials: wood, plywood, rubber for paddle

Q1 Prepare an assembly chart for the product.

Q2. Develop bill of material

Q2. Develop bill of material

Main Piece (1) Handle (2) Rubber pads (2)

Q3. Develop a route sheet to make the

Exercise Inspect Inspect Inspect

Wait for Cut into

Q3. Wait for

Flow Process Chart Box for

Q2. Develop bill of material

Main Piece (1) Handle (2) Rubber pads (2)

Q3. Part Name: Main Piece

Master Production Rough Cut Capacity

Hierarchy of Planning in MRP-II

D(2) E(1) D(3) F(2)

Independent demand is uncertain. (demand needs to be estimated)

Planned Lot Quantity (100 tables/wk) 100 x 4 = 400 table legs

Demand Source Company Customers Parent Items

Material Type Finished Goods Components and Raw

Nature of Variation Tends to be Continuous Tends to be Lumpy

Model at time A, when the

A B C needed at time C, not B.

Model lesson that given the

A C alignment of required. Order is

TABLE ASSY &

• Before MRP came most production control systems revolved around

• Producing a product made of multiple components requires significant

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Pressboard Clip Ass’y Rivets

Top Clip Bottom Clip Pivot Spring

LEVEL ITEM UNIT OF MEASURE QUANTITY

Planned Change Exception

Gross Requirements Derived from MPS or planned order

Pressboard Clip Ass’y Rivets

Pressboard Trim Beanbag Glue

Item Master File

ITEM: CLIPBOARD LLC: 0 PERIOD

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Dr. G. K. Adil, IIT Bombay 45

ITEM: CLIPBOARD LLC: 0 PERIOD

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Assumption: We adjust available supplies against