1. MATERIAL Requirements planning MRP

2. PLANNING AND CONTROL SYSTEM
Strategic planning
Sales & Operations Plan. (aggregated)
Master Production Schedule (MPS)
Material Requirements Plan.
Purchasing Control
Production Control
Input /Output Control
Detailed Capacity Req. P.
Rough-cut Capacity Plan.
Resource Planning
Plan
Execution
Demand
Forecasts
Customers Orders
Resources

3. Materials Requirements Planning MRP
MRP system
Production and inventory management system in dependent demand inventory environment .
System was developed by Orlicky in the early seventies of last century
MRP determines the items orders quantities and the time periods (time „buckets”) in which those orders must be placed to meet MPS needs.
Backgraund of MRP
Distinction of independent demand and dependent demand inventory
Availability of relatively powerful, reliable and cost-efective computers

4. Material Requirements Planning – MRP
Assumptions:
Component items inventory, unlike finished goods inventory cannot usefully be treated as independent items. The demand for them is dependent for the assemblies of which they are part.
When a time phased scheduled (Master Schedule) is available, the demand for the dependent components can be calculated. So, it makes no sense to forecast them.
Classical inventory control models assume a uniform or a well defined demand pattern. However, the dependency of component demand on the demand for their parents, gives rise to a phenomenon of discontinuous demand at the component level. Discontinuous demand occurs because of the effects of lot sizing and the fact that demand for an item often arises from a number of product sources. The implication of the discontinuous demand is that order point techniques are inappropriate for manufacturing inventories.

5. Independent and Dependent Demand
INDEPENDENT DEMAND - the demand for item is independent on the demand for others item.. The typical dependency is only on external customer demand. Final products and spare parts inventory.
DEPENDENT DEMAND - demand for item is dependent upon the demand for some other item (parent item). Components and raw materials
Bill of Materials
CAR
WEEL
TIRE

6. Stock Consumption and Demand Inventory Reorder Point System used in dependent inventory case
Independent demand
Car
Dependent demand
Weel RP
Product
STOCK CONSUMPTION
Demand
STOCK DEMAND
Tire
Discontinuous
Steady and Continuous
Time
Time
Assembly
Time
Time
Component
Time
Time

7. Basic Structure of MRP system
MASTER PRODUCTION SCHEDULE (MPS)
MATERIAL REQUIREMENTS PLANNING (MRP)
Gross Requirements calculation
Netting
3. Lot sizing
4. Offsetting. Backward scheduling
Master Items File
Lot size, Lead time
Bill of Materials
Inventory status
On Hand and Projected inventory
Scheduled receipts of openned orders
Planned Purchasing Order Releases
Planned Manufacturing Order Releases

8. MRP Explosion BOM X B C D F E Product Structure (Bill of Materials)
Total (cumulated) lead time of Product X X B C D E F
(2)
(3)
(4)
(1) 1 2 3
Level 1 2 3 4 6 5
Week
p – production
z - purchasing Ez Dp Bp Ez Xp
X MPS:
6 th week Ez Cp Fz

9. MRP Record Time Period t 1 2 3 4 5 6 7 Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned receipts
Planned order release
Gross requirements – total quantity needed of a particular item in each time bucket (time period)
Scheduled receipts – quantity for which an order has been released and which is planned for receipt during a given time bucket. Entries in this row indicate when the order should come in and how many units should be in it. Scheduled receipts correspond to orders that have actually been placed some time in the past, but not yet received.
Projected available (projected ending inventory) – shows the planned number units that should be available at the end of each time bucket. If the number of units avaiable is not sufficient to cover gross requirements, then Net requirements indicates the number of units the company is short.
Planned receipts – shows when orders must arrive in order to avoid a shortage of necessary parts or materials. Planned receipts correspond to orders planned for release, but not yet released
Planned order releases – indicates the time periods in which the orders must be released (or placed) to arrive at the correct time

10. Projected available t - 1 Safety stock paramiter
MRP Logic
Gross requirements calculation (MPS + Bill of Materials)
Net requirements calculation (NRt = GRt – SRt – PAIt-1 + SS)
Lot Sizing – order quantity calculation using proper lot sizing method ( Lot For Lot, Fixed Quantity, Fixed Periods, Economic Order Quantity, Part Period Balancing, Wagner Whitin algorithm)
Backward scheduling (Timing) – placing a planned order in the appropriate time period (lead time)
Net req-ments t
Gross req-ments t
Scheduled receipts t
Projected available t - 1
Safety stock paramiter = - - +

11. Lot Sizing ? Part C Periods (weeks) 1 2 3 4 5 7 8 6 Net requirements
Planned order release 20 ?
LOT SIZING ALGORITHMS
1. Lot for Lot - LFL
2. Fixed Order Quantity - FOQ
3. Economic Order Quantity - EOQ
4. Fixed Period Requirements -- FPR
5. Period Order Quantity - POQ
6. Least Unit Cost - LUC
7. Least Total Cost - LTC
8. Part-Period Balancing - PPB
9. Wagner-Whitin Algoritm - WW
Tadeusz Zbroja

12. Algorithm 1 – Lot 4 Lot Lot size = net requirements
Example Planning horizon = 9 weeks
Period = 1 week
Holding cost H = 1 $/unit/week
Order cost (set up cost) S = 100 $/order
Week 1 2 3 4 5 6 7 8 9
Total
Net requirements 35 10 40 20 5 10 30
150
Lot size 35 10 40 20 5 10 30
150
Inventory
Holding costs TH = 0
Setup costs TS = 700
Total costs TC = 700

13. Algorithms 2 - 3
Assumption: Lot size is fixed, order period is variable
Algorithm 2 – lot size is set up.
Algorithm 3 – lot size is calculated using EOQ model
Example: Algorithm 2 (lot size is fixed FQ = 60 units)
Week 1 2 3 4 5 6 7 8 9
Total
Net requirements 35 10 40 20 5 10 30
150
Lot size 60 60 60
180
Inventory 25 15 15 35 35 15 10 30
180
Holding costs TH = 180
Setup costs TS = 300
Total costs TC = 480

14. Algorithms 4 - 5 Assumption: Order period is fixed
Algoritm 4 – order period is set up.
Algoritm 5 – lot size is calculated using EOQ model
Example: Algoritm 4 (order period is fixed FP = 3 weeks)
Week 1 2 3 4 5 6 7 8 9
Total
Net requirements 35 10 40 20 5 10 30
150
Lot size 45 60 45
150
Inventory 10 20 20 40 30
120
Holding costs TH = 120
Setup costs TS = 300
Total costs TC = 420

15. Algorithms 6 - 9
Assumption: Lot size is variable, order period is variable
Example: Algoritm 9 (Wagner’s Whitin’s algorithm)
Week 1 2 3 4 5 6 7 8 9
Total
Net requirements 35 10 40 20 5 10 30
150
Lot size 45 65 40
150
Inventory 10 25 25 5 30 95
Holding costs TH = 95
Setup costs TS = 300
Total costs TC = 395

16. Example of MRP calculation
MPS
Week 1 2 3 4 5 6 7
MPS
Product X 15 30 25
BOM X B C D E F
(2)
(3)
(4)
(1) 1 2 3

17. Material Requirements Planning logic
Gross requirements calculation
Net requirements calculation
Lot sizing
Backward scheduling - orders release time setting
Planned order releases of product X
MRP record of item B x2 x2 x2
Item: B
Period t 1 2 3 4 5 6 7
Lead time: 1
Gross requirements 30 60 50
Safty stock = 0
Scheduled receipts
Lot size: Lot For Lot
Projected available
Net requirements
Planned receipts
Planned order release

18. Material Requirements Planning logic
Master Prod. Schedule
Period t 1 2 3 4 5 6 7
(MPS)
Product X 15 30 25
Master Item: X
Period t 1 2 3 4 5 6 7
Lead time: 1
Gross requirement 30 25
Safety stock = 0
Scheduled receipts
Lot size: Lot For Lot
Projected available
Net requirements
Planned receipts
Planned order release 15 15 15 15
Item: C (2)
Period t 1 2 3 4 5 6 7
Lead time: 2
Gross requirement 60 50
Safety stock: 0
Scheduled receipts
Lot size: FQ 50
Projected available 20 10
Net requirements 40
Planned receipts
Planned order release x2 x2 x2 x2 30 30 50

19. Material Requirements Planning logic
Material Requirements Planning (changes in time)
One week later
Item: C (2)
Period t 2 3 4 5 6 7 8
Lead time: 2
Gross requirement 30 60 50
Safety stock: 0
Scheduled receipts
Lot size: FQ 50
Projected available 40
Net requirements 20
Planned receipts
Planned order release 50
The order open in week 1

20. The Advantages of MRP
The advantages of using MRP in manufacturing management and production planning
On time availability of the right materials required for production.
Little inventory (customers report that inventory reduced by 14% on average).
Timely delivery of manufactured goods to customers (increased by 17%).
Optimal use of manufacturing resources (equipment downtime reduced 14%).
Decrease in capital cost due to decreased inventory levels and optimal use of production resources.
Collecting the business data for analysis and better planning
The Disadvantage – Data Accuracy Risk
The lack of data accuracy cause big problems with the planning.