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Material Requirement Planning


(MRP)
Chapter 16
Feb 9, 2006
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Material Requirement Planning (MRP)
______________________________________
______________________________________

Key Outputs of MRP
Calculate demand for component items
Determine requirements for subassemblies, components, and raw
material
Determine when they are needed
Generate work orders and purchase order
Consider lead time

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When to use MRP
___________________________________
___________________________________
___________________________________
___________________________________
Dependent / Independent Demand?
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Demand Characteristics
1 2 3 4 5
Week
400
300
200
100
N
o
.

o
f

t
a
b
l
e
s

Continuous demand
M T W Th F M T W Th F
400
300
200
100
N
o
.

o
f

t
a
b
l
e
s

Discrete demand
Independent demand
100 tables
Dependent demand
100 x 1 =
100 tabletops
100 x 4 = 400 table legs
Demand Characteristics for Finished Products and Their Components
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MRP Input & Output
Material
Requirements
Planning
(MRP)
Work
orders
Purchase
orders
Rescheduling
notices
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Major Inputs to MRP Process:
1. Bill of Material
Product structure file
Determines which component items need to be scheduled
Product Structure Record
Clipboard
Level 0
Level 1
Level 2
Sprin
g (1)
Bottom
Clip (1)
Top
Clip (1)
Piv
ot
(1)
Rivet
s (2)
Clip
Assembly
(1)
Pressboa
rd (1)
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Major Inputs to MRP Process:
2. Master Production Schedule (MPS)
Drives MRP process with a schedule of finished products
Quantities represent production not demand
Quantities may consist of a combination of customer orders &
demand forecasts
Quantities represent what needs to be produced, not what can be
produced
Example

PERIOD
MPS ITEM 1 2 3 4 5

Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
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Major Inputs to MRP Process:
3. Inventory Record
_________________________________________________
Contains an extensive amount of information on every item that
is produced, ordered, or inventoried in the system
_________________________________________________
DESCRIPTION INVENTORY POLICY
Item Pressboard Lead time 1
Item no. 734 Annual demand 5000
Item type Purch Holding cost 1
Product/sales class Comp Ordering/setup cost 50
Value class B Safety stock 0
Buyer/planner RSR Reorder point 39
Vendor/drawing 07142 EOQ 316
Phantom code N Minimum order qty 100
Unit price/cost 1.25 Maximum order qty 500
Pegging Y Multiple order qty
LLC 1 Policy code 3
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MRP Processes 4 Basic Steps
1. Exploding the bill of material
___________________________________
2. Netting out inventory
___________________________________
___________________________________
3. Lot sizing rule How many units
___________________________________
___________________________________
___________________________________
4. Time-phasing requirements
___________________________________

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Lot Sizing Rule Comparison
The FOQ rule ___________
_______________________

The POQ rule ___________
_______________________
_______________________
_______________________

The L4L rule ___________
_______________________
_______________________
_______________________
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MRP Matrix
Gross Requirement
Derived from planned order releases of the parent
Actual / estimated demand, in case of final product
Schedule Receipts
Items on order
Scheduled to arrive in the future time period
Projected on hand
Current inventory, or anticipated inventory at the end of period


Projected on-hand
Inventory at end
of period t
Inventory on-
hand at end
of period t - 1
= +
Scheduled /
planned
receipts in
period t
-
Gross
requirements
in period t
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MRP Matrix
Net requirements
Actual quantity to produce based on projected on hand
and on-order quantity
Planned Order Receipts
Quantity, when orders need to be received
Consider lot sizing rule:
Planned Order Release
When order need to be placed to receive on time
Consider lead time

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MRP Matrix
(You can download the template from our class webpage)
Gross Requirements
Derived from MPS or planned order
releases of the parent
Scheduled Receipts
On order and scheduled to be received
Projected on Hand Beg Inv
Anticipated quantity on hand at the end
of the period
Net Requirements
Gross requirements net of inventory and
scheduled receipts
Planned Order Receipts
When orders need to be received
Planned Order Releases
When orders need to be placed to be
received on time
ITEM NAME OR NO. PERIOD
LOT SIZE LT 1 2 3 4 5
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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
Net Requirements
Planned Order Receipts
Planned Order Releases
Example MRP Matrix
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MRP Example 1
Given the following information, determine when
orders should be released for A, C, and D and the
size of those orders
Parts On hand Scheduled
Receipts
Lot Size Demand
A
C
D
10
140
200

0
0
250, period 2
L4L
Mult 50
Mult 250

100, period 8
A
LT=3
C(3)
LT=4
D(2)
LT=2
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MRP Example 2
Given the following information,
determine when orders should be
released for A, B, C, and D and
the size of those orders.
Parts On hand Scheduled
Receipts
Lot Size Demand
A
B
C
D
10
5
140
200

0
0
0
250, period 2
L4L
L4L
Mult 50
Mult 250

100, period 8
200, period 6
-
-
A
LT=3
C(3)
LT=4
D(2)
LT=2
B
LT=2
D(3)
LT=2
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Evolution of MRP
MRP (material requirements planning) was the
precursor to ERP
Primarily a production planning and control system
MRP evolved to MRP II (manufacturing resource
planning)
ERP (Enterprise Resource Planning) and ERP II
continue to extend the links through all business
processes
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Enterprise Resource Planning (ERP)
An Overview
Organizes and manages a companys business processes
by sharing information across functional areas

Connects with supply-chain and customer management
applications

ERP in the nutshell*
Client server software
Integrates majority of business processes
Processes majority of transactions
Enterprise wide database
Real time data access

* adapted from e-courseware, MIT Sloan
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ERP Modules
[Figure 12.1 Organizational Data Flow]
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ERP Modules
[Figure 12.2 ERPs Central Database]
Finance &
Accounting
Sales
&
Marketing
Human
Resources
Production &
Materials
Management
ERP Data
Repository
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ERP Implementation Process
First step is to analyze business processes
Which processes have the biggest impact on customer
relations?
Which process would benefit the most from integration?
Which processes should be standardized?

Use of Internet portals can aid implementation

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