Chapter 13

MRP: Material Requirement Planning

ERP: Enterprise Resource Planning

Material requirements planning Computer-based Information System for Ordering and Scheduling of Dependent Demand Inventories

MRP

A

B(4) C(2)

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

Independent Demand

Dependent Demand

Independent and Dependent Demand

Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releasesPlanned-orderschedules

Exception reports

Planning reportsPerformance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

Information Flow, Processes, Data Bases

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-MaterialsProduct 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

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

Front LegAssembly

BackAssembly

Level 0

1

2

3

Product Structure Tree

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

Front LegAssembly

BackAssembly

Level 0

1

2

3

Example

A

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

B (2) C

Level 0

1

2

3 E (4)

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

Extend Level 1

A

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

B(2) C

Level 0

1

2

3 E (4)

Extend Level 2

A

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

B(2) C

Level 0

1

2

3E (4*3*2)

Compute the Quantities

A

D (6) E(2) E (2) F (2)

B(2) C

Level 0

1

2

3 E (24)

We needB=2C=1D=6E=28F=2

ExampleInventory B=4C=10D=8E=60F=0

Determine the quantities of these components that we need to order or assemble to satisfy demand of 10A

A(10)

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

B (2) C

Level 0

1

2

3 E (4)

Extend Level 0

A(10)

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

B (20) C (10)

Level 0

1

2

3 E (4)Inventory B=4C=10

Level 1 Computations

A(10)

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

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

Level 0

1

2

3 E (4)

Extend Level 1

A(10)

B (16) C (0)

Level 0

1

2

3

Extend Level 1

A(10)

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

B (16) C (0)

Level 0

1

2

3 E (4)

Extend Level 1

A(10)

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

B (16) C (0)

Level 0

1

2

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

Level 2 Computations

A(10)

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

B (16) C (0)

Level 0

1

2

3 E (4)

Level 2 Computations

A(10)

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

B (16) C (0)

Level 0

1

2

3 E (4)

Extend Level 2

A(10)

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

B (16) C (0)

Level 0

1

2

3E (4*40)

Extend Level 2

A(10)

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

B (16) C (0)

Level 0

1

2

3E (160)

Extend Level 2

A(10)

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

B (16) C (0)

Level 0

1

2

3E (160)

Inventory E=60Requirement E = 160+16-60=116

E=60F=0

Extend Level 2

A(10)

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

B (16) C (0)

Level 0

1

2

3E (100)

Assembly Time Chart

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Shutter, 1 Frame (LT=2W), and 4 Wood Section (LT=1W)

1 2 3

Frame (2, 2)

Wood Sections (4,1)

ShutterAssembly (1)

Week BegInv

1 2 3 4 5 6 7 8

Quantity 100 150

ShutterLT = 1W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

100 150

100 150

100 150

100 150

Master Schedule; Lot for Lot Ordering

Shutter has two frames and four wood sections

FrameLT = 2W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

200 300

200 300

200 300

200 300

ShutterLT = 1W

Gross Requirement 100 150

Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150

Planned Order Releases 100 150

Frame; 2 per unit, LT=2 W

Wood SectionLT = 1W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

400 600

70

600

330 600

330 600

ShutterLT = 1W

Gross Requirement 100 150

Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150

Planned Order Releases 100 150

70 70 70

330

Wood Section; 4 per unit, LT=1 W

FrameLT = 2WEOQ 320

Gross Requirement 200 300

Scheduled Receipts

Projected on Hand

Net Requirement 200

Planned Order Receipts

Planned Order Releases 320

180

320 320

ShutterLT = 1W

Gross Requirement 100 150

Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150

Planned Order Releases 100 150

Master Schedule; Lot Size Ordering; EOQ 320, 70

120 120 120 120 140

320

Wood SectionLT = 1WEOQ 70

Gross Requirement 400 600

Scheduled Receipts 70

Projected on Hand 70 70 70

Net Requirement 330

Planned Order Receipts

Planned Order Releases580

350 630

350 630

ShutterLT = 1W

Gross Requirement 100 150

Scheduled Receipts

Projected on Hand

Net Requirement 100 150

Planned Order Receipts 100 150

Planned Order Releases 100 150

20 20 20

Lot Size Ordering: EOQ 70

20 50

Practice; Example (pp 606, P2), Units Required, Lead Times

Item End B C D E F G HLT (WK) 1 2 3 3 1 2 1 2InvOnHand 0 10 10 25 12 30 5 0For 20 units of the end item, how many additional units of each item is required

A

E (2) F(3) G (2) E (2)

B (2) D(3)

Level 0

1

2

C

E (2) H (4)

Units Required

A(20)

E (2) F(3) G (2) E (2)

B (2) D(3)

Level 0

1

2

C(1)

E (2) H (4)

Item End B C D E F G HInvOnHand 0 10 10 25 12 30 5 0

A(20)

E (2) F(3) G (2) E (2)

B (40) D(60)

Level 0

1

2

C(20)

E (2) H (4)

Item End B C D E F G HInvOnHand 0 10 10 25 12 30 5 0

Units Required

A(20)

E (2) F(3) G (2) E (2)

B (40-10) D(60-25)

Level 0

1

2

C(20-10)

E (2) H (4)

Units Required

A(20)

E (2) F(3) G (2) E (2)

B (30) D(35)

Level 0

1

2

C(10)

E (2) H (4)

Units Required

A(10)

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

B (30) D(35)

Level 0

1

2

C(10)

E (2*10) H (4*35)

Units Required

A(10)

E (60) F(90) G (20) E (70)

B (30) D(35)

Level 0

1

2

C(10)

E (20) H (140)

Item E F G HInvOnHand 12 30 5 0

Units Required

A(10)

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

B (30) D(35)

Level 0

1

2

C(10)

E (20) H (140)

Units Required

A(10)

E (48) F(60) G (15) E (70)

B (30) D(35)

Level 0

1

2

C(10)

E (20) H (140)

Item End B C D E F G HRequired 20 30 10 35 138 60 15 140

Units Required

Example (pp 673, P2); Lead Times

A(1)

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

Lead Times

A(1)

B DC

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

Lead Times

A(1)

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

Lead Times

A(1)

E F

G E

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

E H

Item E F G HLT (WK) 1 2 1 2Required 138 60 15 140

Lead Times

A(1)

E (1) F(2)

G (1) E (1)

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

E (1)H (2)

Lead Times

A(1)

E (1) F(2)

G (1) E (1)

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

E (1) H (2)

Week BegInv

1 2 3 4 5

Quantity 120

Product XLT = 1W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

120

120

120

120

Master Schedule; Lot for Lot Ordering

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)LT = 1W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

360

60

60 60 60

Product XLT = 1W

Gross Requirement 120

Scheduled Receipts

Projected on Hand

Net Requirement 120

Planned Order Receipts 120

Planned Order Releases 120

Part A; 3 per unit, LT=1 W

300

300

300

Part B(2)LT = 2W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

600

100

100 100 100

Part B; 5 per unit, LT=2 W

500

500

500

Part A (3)LT = 1W

Gross Requirement

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

360

60

60 60 60

300

300

300

Solved Problems 1 and 2 on pages 602-604.First solve the problem yourself.Then look at the solution.

Need More Practice ?

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 PlanningCapacity 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 tentativemaster production

schedule

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

• 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

MRP in Services

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

• Expanded MRP with and emphasis placed on integration– Financial planning

– Marketing

– Engineering

– Purchasing

– Manufacturing

MRP II

MarketDemand

Productionplan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

Adj

ust m

aste

r sch

edul

e

MRP II

• Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization

ERP