chap-18

18

MATERIAL REQUIREMENT PLANNING(MRP)

. Introduction.MRPObjectives.Functionsservedby MRP.MRP terminology. MRP system

. Masterproductionschedule(MPS) .Inventory status file .Bill of material (BOM) .MRP logic.MRP outputs. Management information from MRP ~_Lot Sizing considerations. Manufacturingresource planning-MRP II .Capacity requirements planning (CRP).

18.1. INTRODUCTION

Material requirement planning (MRP) refers to the basic calculations used to determinecomponent requirements from end item requirements. It also refers to a broader informationsystem that uses the dependence relationship to plan and control manufacturing operations.

MRP is a technique of working backward from the scheduled quantities and needs dates for enditems specified in a master production schedule to determine the requirements for c9mponentsneeded to meet the master production schedule. The technique determines what components areneeded, how many are needed, when they are needed and when they should be ordered so that theyare likely to be available as needed. The MRP logic serves as the key component in an informationsystem for planning and controlling- production operations and purchasing. The informationprovided by MRP is highly useful in scheduling because it indicates th~ relative priorities of shoporders and purchase orders.

"Materials Requirement Planning (MRP) is a technique for determining the quantity andtiming for the acquisition of dependent demand items needed to satisfy master productionschedule requirements."

MRP is one of the powerful tools that, when applied properly, helps the managers in achievingeffective manufacturing control.

18.2. MRP OBJECTIVES

I. Inv.entory reduction: MRP determines how many components are required, when they arerequired in order to meet the master schedule. It helps to procure the materials/components as andwhen needed and thus avoid excessive build up of inventory.

2. Reduction in the manufacturing and delivery lead times: MRP identifies materials andcomponent quantities, timings when they are needed, availabilities and procurements and actionsrequired to meet delivery deadlines. MRP helps to avoid delays in production and priortiesproduction activities by putting due dates on customer job orders. '

3. Realistic delivery commitments: By using MRP, production can give marketing timelyinformation about likely delivery times to prospective customers.

4. Increased efficiency: MRP provides a close coordination among various work centres and

237

238 INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

hence helps to achieve uninterrupted flow of materials through the production line. This increasesthe efficiency of production system. ,

18.3. FUNCTIONS SERVED BY MRP1. Order planning and control: When to release orders and for what quantities ofmaterials/components.

2. Priority planning and control: How the expected date of availability is compared to theneed date for each component.

3. Provision of a basis for planning capacity requirements and developing a broad businessplans.

The following questions are addressed in MRP processing:

1. What do we want to produce, and when.

2. What component are required to make it andhow many.

3. How many are already scheduled to beavailable in each future period.

4. How many more we need to obtain for eachfuture period.

5. When to order these amounts so they willbe available when needed.

Provided by Master Production Schedule

Bill of Materials (BOM)

Inventory status file

Difference in required and available

Planned order release

18.4. MRP TERMINOLOGYI. Dependent demand: The demand for an item depends on another item. The demanddependency is the degree to which the demand for one item is associated with demand for anotheritem.

2. MRP: A technique for determining the quantity and timing of dependent demand items.3. Lot size: The quantity of items required for an order.4. Time phasing: Scheduling to produce or receive an appropriate amount (Lot) of material

so that it will be available in the time periods when required.5. Time bucket: The time period used for planning purposes in MRP.6. Gross requirements: The overall quantity of an item needed at the end of the period to

meet the planned output levels.7. Net requirements: The net quantity of an item that must be acquired to meet the scheduled

output for the period. It"is calculated as, Gross requirements minus scheduled receipts for theperiod minus amounts available from the previous period.

8. Requirements explosion: The bre\king down of (exploding) parent items into componentparts that can be individually planned and scheduled.

9. Scheduled receipts: The quantity of an item that will be rece\ved from suppliers as a resultof orders that have been placed.

10. Planned order receipts: The quantity of an item that is planned to be ordered so that itwill be received at the beginning of the period to meet net requirements for the period. The orderhas not yet been placed.

11. Planned order release: The quantity of an item that is planned to be ordered or it is a plan(quantity and date) to initiate the purchase or manufacture of materials so that they will bereceived on schedule after the lead time offset.

12. Lead time offset: The supply time or number of time buckets between releasing an orderand receiving the ma~erials.

MATERIAL REQUIREMENT PLANNING (MRP) 239

18.5. MRP SYSTEMFig. 18.1 'shows the MRP system components.

MASTER PRODUCTION

~CHEDULE (MPS)

InventoryStatus File

. Materials RequirementPlanning (MRP)Processing logic

Bill of Material(HOM)

I j

Order ReleaseRequirements(Orders to beplaced now)

Orders ReschedulingPlanned Orders

(Future)

I'

Fig. 18.1: MRPsystem.

The inputs to the MRP systems are: (1) A master production schedule, (2) An inventory Statusfile, and (3) Bill of material (BOM).

Using these three information sources, the MRP processing logic (Computer Programme)provides three kinds of information (Output) for each product component: Order releaserequirements order rescheduling and planned orders.

I~

Master Production Schedule (MPS)MPS is a series of time phased quantities for each item that a company produces, indicating

how many are to be produced and when. MPS is initially developed from firm customer orders orfrom forecasts of demand before MRP system begins to operate. rhe MRP system acceptswhatever the 'master schedule demands and translates MPS end items into specific componentrequirements. Most systems then make a simulated trial run to determine whether the proposedmaster schedule can be satisfied. .

Inventory Status FileEvery inventory item beingplannedmust have an inventorystatus file which gives complete

and up to date information on the on hand quantities, gross requirements, scheduled receipts andplanned order releases for the item. It also includes wanning information such as lot sizes, leadtimes, safety stock levels and scrap allowances.

Basically, the job'of the inventory status file is to keep data, about the projected use and receiptsof eachitem andto determinethe amountof inventory that will be availablein each time bucket.If the projectedavailableinventoryis not adequateto meet the requirementin a period, the MRPprogramme w.ll recommend that its item be ordered.

8i11of Materials (80M)To schedulethe productionof an end product,the MRPsystemmustplanfor all the materials,

parts and subassemblies that go into the end product. The Bill of MateriaJ file in the computerprovide this information.BOM file identifieseach componentby uniquepart numberand helpsprocessingby aprocesswhich 'explodes' end itemrequirementsinto componentrequirements.

Thus BOM identifieshow eachend product is manufactured,specifyingall subcomponentsitems, their sequence of build up, their quantity in each finished unit and the work centres


.II

performing the build up sequence. This information is obtained from product design documents,work flow analysis and other standard manufacturing information. .

The BOM processor is a software package that maintains and updates the BOM listing of allcomponents that go into the product. It also links the BOM file with the inventory status file sothat the requirements explosion correctly accounts for the current inventory levels of allcomponents.

Product structure: The primary information to MRP from Bill of material is the productstructure, the level of components to produce an end product. End product is on level '0'; thecomponents required for level '0' are on level 'I' and so on. A product structure is shown in Fig.18.2.

Level '0' (End Product) A D

ComponentsLevel (1)

B C E

ComponentsLevel (2)

Fig. 18.2: Product structure for two assembled products.

nIf

One unit of end product A requires one unit each of components Band C. One unit of endproduct D requires one unit of component E and one unit of component F. The component F inturn requires one unit of component B and two units of component C.

To facilitate MRP processing, each component at every level of the BOM must have a uniquepart number for its identification. The separate identifications enable computer to find any parentitem and. to determine all the components needed to make it. Determining all the lower levelcomponents needed to make a parent is called exploding the requirement by the BOM.

Example of Product StructureThe product structure tree fora three drawer file cabinet without fasteners is represented in Fig.

18.3.

Level '0'

Level '1'

3 drawer filecabinet

Part No. 001 1(1week)

Level '2'

Level '3'

Fig. 18.3: Product Structure file for 3 drawer file cabinet..

,

II


Number-001

1001 (1)

1002 (1)

1003 (3)

1001

2001 (6)

2002 (1)

1003

2003 (1)

2004 (1)

2005 (2)

2002

3001 (1)

2003

3002 (1)

DescriptionFile cabinet

Case assemblyLock

Drawer assembly

Case assemblyDrawer slides

Formed case

Drawer assemblyFormed drawerHandle

Support rollersFormed case

Sheet steelFormed drawer

Sheet Steel

18.6. MRP.OUTPUTSThe most visible outputs are the actual and planned order releases that go to purchasing and inhouse production shops. .

A variety of reports can be generated from the information made available by an MRP Program.

TO MPS Planners'. Simulation of proposed MPS. Researching information for open orders

(due to cancellation, delays, shortages)To Purchasing and Production. Changes to keep priorities valid.. Order releases (Purchase and shop orders). Planned order releases

To capacity Requirements Planning. Order release information for load profiles, delays, shortagesTo Management. Performance measurement of (vendors, cost, forecast accuracy). Exception reports (on due dates BOM file, etc.)

18.7. MRP LOGIC.MRP processing logic accepts the master schedule and determine the components schedulessuccessfully for low-level items of the product structures. It calculates for each item in eachproduct structure and for each time period (typically one week) in the planning horizon how manyof that items are required (Grass requirements) how many units from inventory are alreadyavailable, the net quantity that must be planned (planned order receipts) and when orders for newshipments must be planned (planned order releases) so that all material arrive when needed.

Net requirements are calculated by adjusting for existing inventory items already, on order asrecorded in inventory statuS file.

. Projected grossNet reqUIrements = . treqUIremen s

- [Inventory + SChe~Uled]. on hand receIpts.

,,.'.

, II

,:'

. ,"I

I.

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Order releases are planned for components in a time phased manner (using lead time data fromthe inventory file) so that materials will arrive precisely when needed. This is referred to asplanned order receipt. When the.orders are actually issued to vendors or shops the planned receiptbecomes the scheduled receipt.

18.8. MANAGEMENT INFORMATION FROM MRPlARPoutput includes a report as s~own in Fig. 18.4 for one component. The detailed identification(code), lead time is given in the report.

The report shows that:. 400 units are needed in week 4 and another 500 nelded in week 8. (Gross requirements). No outstanding orders were previously placed, and no scheduled receipt of this items.. There ar~ 50 units of the item already available as inventory and this will. meet the 4

weeks requirements.. Thus, net requirements are 350 units for week 4 (400-50) and 500 for week 8.To meet these net requirements, we should plan to receive 350 units in four weeks and 500 units

in eight weeks. Since the lead time for an item is three weeks, the first order must be placed in firstweek and second in fifth week.

This report clearly identifies the procurement actions required to keep production on schedule.Any change in end item demand with time, modifications in the MPS will dictate correspondi.ngadjustment of lower level requirements.

Fig. 18.4: An MAP report for one item.

18.9. LOT SIZING CONSIDERATIONSThe released orders should specify a discrete lot size for purchasing or manufacturing. The variouslot sizing techniques available are given below: .. FIXED ORDER QUANTITY-Each time an order is placed, the quantity remains same.. ECONOMIC ORDER QUANTITY (EOQ).. LOT FOR LOT (LFL)-Order the exact net requirements each period.

. LEAST UNIT COST (LUC)

. LEAST TOTAL COST (LTC)-Order the quantity that minimises the total set-up andcarrying ~osts during the planning horizon.. PART PERIOD ALGORITHM (PPA)-Use the ratio of ordering and carrying costs toderive a part period I)umber and use the number as a creation for cumulating requirements.. FIXED PERIOD REQUIREMENTS-Order a supply for a given number of periods eachtime (e.g., a two months supply).

WEEK

J 2 3 4 5 6 7 8

Gross requirements 400 500

Scheduled receipts

Availablefor next period I 50 50 50 50

Net requirements 350 500

Planned Order receipts -- 350 --- -500Planned Order releases

I350-

-500- ,

.


Problem 1: Complete the material requirements plan for an item X shown below. The item hasan independent demand and a safety stock of 40 is maintained.

Solution.

Problem 2: A small-scale unit manufactures a product and it is expected to supply 80 units inweek I, 120 in week 4, 120 in week 6, and 100 in week 8. Each product is made of 2 housings, ashaft assembly and one wheel. For shaft assembly order quantities, lead times and inventories on

- hand at the beginning of period 1 are given below.

Apart from the above requirement, another 180 shafts assembly required for another customer600 units of housing are already scheduled to be received at the beginning of week 2. Completethe material requirement plan for housing, shaft and wheel and show what quantities of ordersmust be released and when they must be released in order to satisfy the MPS.

Solution: End item master schedule is shown in table 18.1.

Table 18.1: End item Master Schedule

Week Nos.

Requirement"

I

80

2 3 4

120

5 6 7 8

50

...

WEEKOrder Quantity = 70Lead time =4 weeks I 2 3 4 S 6 7 I 8 9 10 II 12

Safety stock =40 -Projected 20 20 25 20 20 25 20 20 30 25 25 25

requirement

Receipts 70

On hand at theend of period (65) I-

Planned orderrelease J

WEEKOrder Quantity = 70Lead time=4 weeks I 2 3 4 5 6 7 8 9 10 II 12

Safety stock =40

ProjeLted 20 20 25 20 20 25 20 20 30 25 25 25requirement

Receipts 70 70 70

On hand at theend of period (65) 45 95 70 50 100 75 55 105 75 50 95 70

.Jff 25'

Planned order 70 70 70release

Part Order Qty. Lead time Inventory on hand

Housings 600 2 weeks 200

Shaft assembly 400 3 weeks 440

Wheel 800 I week 100


Table 18.2: Components and Subcomponents Materials Plan

Component Material Plan-Housing

.:;,I,

0

(Place order in week 6 as in week, 8, there is negative stock)

Component Material Plan-Shaft

.,.'.:1

* Requirementfrom anotherproduct.

The MRP master schedule and component part schedule is shown in the tables.Each unit of product requires two housing, one shaft assembly and one wheel. Each unit of

product requires two housing, the projected material requirements for housing are double thenumber of end products. The projected requirements of 160 housings in period 1 are adequatelysatisficd by the 200 units on hand at the beginning of period 1, leaving 40 on hand .at the end ofperiod I. On hand materials can be calculated with the following equation:

Onhandat Onhandat end + R . t Projectedendof period = of previousperiod ecelp s - requirements

With the receipt of 600 housings in period 2, the on hand inventory will be adequate until week

Order Quantity =600WEEK

Lead time =2 weeks l' 2 3 4 5 6 7 8

Projected 160requirement

240 240 200

Receipts 600 r- I- 600On hand at the /

end of period (200)40 640 640 400 400

160/160 560

40Planned order

orelease - '


Lead time =3 weeks 1 2 3 4 5 6 7 8

Projected 80 120 180*requirement

120 100

Receipts/'

On hand at the360 O 340

end of period (440)360 360 j..- 60

340 240.::::--

Plannedorder t: @ c.----release

.-<1'

Sub-component M'terial Plan-Wheel


Lead time =3 weeks 1 2 3) 4 5 6 7 8, . .Projected 400

requ'irement',Receipts @ 400

On hand at the' 100 500end of period (100)

100300

500 500 500 500 500

Plannedorder Srelease


8, which at first instant will be 40 units short. To overcome this a"planned order release for 600quantity has been scheduled for week 6 because housing has 2 weeks lead-time. The plannedreceipt of 600 in week 8 will thus result in an end of period inventory of 560 units.

Each unit of product requires one shaft assembly and 180 shaft assembly are needed for anotherproduct in week 5 are incorporated into the requirements. The on hand stock is adequate untilweek 6, when quantities will drop to - 60 unless a planned ordet is released in week 3.

The wheel is a sub-component of shaft assembly. Planned o~er of 400 units from the aboveshaft assembly plan shows up as a projected requirement for 400 wheels in week 3 on thesub-component plan. Since on hand inventory is inadequate to supply this need, a planned orderrelease is scheduled for week 2. It should ensure that an order of 400 wheels will be available bythe beginning of week 3.

18.10. MANUFACTURING RESOURCE PLANNING (MRP-II)Manufacturing Resource Planning (MRP-II) is an integrated information system that synchroniseall aspects of the business. MRP-II system coordinates sales, purchasing, manufacturing, financeand engineering by adopting a focal production plan and by using one unified data base to planand update the activities in all the systems.

A manufacturing resource planning can be divided into three parts which are composed of:(i) Product planning functions which take place at the top management level.

(ii) Operationsplanninghandledby staff units. .

(iii) Operations control functions conducted by manufacturing line and staff supervisors.Check points among the three divisIOns provide feedback regarding the adequacy of overall

resources, completeness of resource commitments and the quality of performance in carrying outthe plans. Feedback based onthese checks permits a quick response to changing conditions usingthe latest operating data.

MRP-II integrated system for planning and control is shown in Fig. 18.5.The process (as shown in figure) involves developing a production plan from the business plan

Manufacturing(Material capacity

production schedule)

.1 Inventory

EngineeringProduction &

Process design

MRP

.[

. I

. [

Detailedcapacity

plan

Marketing]

J

)

, Financing

. Accounting

Fig. 18.5: MAP II-An integrated system forplanning and control.


to specify. monthly levels of production for each product line over the next five years. Theproduction department then is expected to produce at the committed levels, the sales departmentto sell at these levels, and the finance department to ensure adequate financial resources for theselevel. Then the production plan guides the master schedule and gives the weekly quantities ofspecific products to be built. Then the capacity available is roughly adequate. If not, either masterschedule or capacity is changed. Once settled, this master schedule is used in MRP to creatematerial requirement and priority schedules for production. Then an analysis of detailed capa~ityrequirement determines whether capacity is sufficient at each work centre during scheduled timeperiods. Then the execution and control activities are determined to ensure that the masterschedule is met. "

18.11. CAPACITY REQUIREMENTS PLANNING (CRP)Capacity is a measure of the productive capability of a facility per unit of time. Capacity decisionsbegin with the initial facility layout and extend to aggregate planning, master scheduling, capacityrequirements planning.

"CRP is a technique for determining what personnel and equipment capacities are needed tomeet the production objectives embodied in the master schedule and the material requirementsplan."

CRP is an effort to develop a match between the MRP schedule and the production capacity ofthe company. Determination of the capacity of the work ~entre and the capacity requir.ementsimposed on those work centres by a particular product mix enables a company to known whatlevel of sales, its production system can support. Thus, company will be able to make realisticsales commitments. Capacity planning helps to avoid under utilisation of capacity and also CRPenables the company to anticipate production bottlenecks in some work centres in time to takecorrective actions.

To be effective, capacity requirements planning must be coordinated with MRP; Workingtogether MRP and CRP programmes translate the master schedule to requirements for componentsand capacity, simulating the impact of the master schedule that provided the input for MRPprogram. CRP can be used to refine the master production schedule (MPS) further after MRP isrun.

Inputs for CRP Process1. Planned orders and released orders from the MRP system.2. Loading information from work centre status file.3. Routing information from the shop routing file.4. Changeswhichmodifycapacity,give alternativeroutingsor alterplannedorders.

The released and planned orders from the MRP system are c~mverted into standard hours ofload by the CRP system. MRP system assumed that capacity is available when needed unlessotherwise indicated.

Outputs of CRPApart from information for modification of capacity or revision of MPS, the major outputs of

the CRP system are the verification of planned orders for the MRP system and load reports.The firm can plan for the average amount of labour and equipment that is expected without

actually designating the capacity for specific orders.The flow of information in CRP is shown in Fig. 18.6.

MATERIAL REQUIREMENT PLANNING (MRP)

Data aboutscheduledreceipts

VendorsShop

247

Revise

ProductStructurefile

Routing file

Production standardfile

No

Yes Yes

, Adjust capacity

Fig. 18.6: Flow of information in CRP.

References for Further Reading

1. Joseph Monks, Operations Management, Third Edition, McGraw Hill Book Company, New York,(1987).

2. James Riggs, Production System-Planning Analysis mid Control, 4th Edition, John Wiley & Sons,New York, (1987).

3. Jam6$ Dilworth, Production and Operations Management, 5th Edition, Mc<iraw Hill Comp~ny, NewYork, (1993).

4. Orlicky Joseph A., Materials Requirement Plann.ing,McGraw Hill, New York, (1975).

5. Vollman J'homas et at., Manufacturing Planning and Control Systems, 3rd Edition, Homewood III,Irwin, (1992).

REVIEW QUESTIONS

A Define MRP and CRP and BOM.

2. How MRP differs from inventory control system?

3. Explain the various terms associated with MRP.

4 Distinguish between planned receipt and scheduled receipt.

5. What are the inputs to MRP?

6. Explain MRP logic and what do you mean by time phasing.7. What are various lot sizes used for MRP?

248' INDUSTRIAL ENGINEERING AND PRODUCTION MANAGEMENT

.,",~i",:..~I

8. What are the benefits of MRP?

9. Write short notes on:

(a) Bill of Materials (BOM)(b) Master Production Schedule (MPS)(c) Product Structure(d) MRP planning horizon(e) CRPif) Outputs of CRP

(g) Manufacturing resource planning.

"

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chap-18

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