1. Material requirements planning
MRP
Introduction
Input data/Output
BOM
Calculations
dr inż. Joanna Oleśków-Szłapka
Poznan University of Technology

2. An Overview of MRP CPR module
MRP uses the concept of backward scheduling to determine how much and when to order and replenish
The CRP (Capacity Requirements Planning) module checks to make sure the scheduled work load profile is feasible
The MPS module contains the authorized schedule
The BOM module contains the product structure for each unique product
The Inventory Record module keeps track of the inventory status for each item in the database
MRP output includes schedules for all internal activities and parts as well as orders for all supply chain items

3. MRP System

4. Input/Output - MRP Process

5. Types of Demand There are two types of demand. Independent Demand
Is the demand for finished products
Does not depend on the demand of other products
Needs to be forecasted
Dependent Demand
Is the demand derived from finished products
Is the demand for component parts based on the number of end items being produced and is managed by the MRP system

6. Material Requirements 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 orders
Consider lead times

7. Master Production Schedule (MPS) Lot sizes Material on-hand
INPUTS TO AN MRP SYSTEM
Bill of Materials (BOMs)
Master Production Schedule (MPS)
Lot sizes
Material on-hand
Amount of material to be purchased.

8. 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
Spring (1)
Bottom Clip (1)
Top Clip (1)
Pivot (1)
Rivets (2)
Clip Assembly (1)
Pressboard (1)

9. Bill of materials - BOM
In order to show the make-up (in terms of the parts needed for production) we have a Bill of Materials (BOM) for the end-product (namely the chair).
BOM is a listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly showing the quantity of each required to make an assembly.

10. Structure of a BOM
The diagram illustrates a bill of material for product A. Product A is made of assembly B, components C and D, and material E. Assembly B is made from components F, G, and H (as well as other assemblies or products). Purchased parts are normally  identified as materials  (items E, F, and G) but can be any product, assembly or component that depending on workload you choose to buy-out or manufacture. This chart was found at the following website:

11. Processes that utilize a BOM
Production
Materials planning
Product costing
Plant maintenance
This is just a few of many different areas in business that use a BOM to organize their materials. This list was obtained from the following web site:

12. Types of BOMs Static (fixed) bill Example:
A bill of material for a part that is normally made from the same components, labor and raw materials.
Used for standard assemblies, components, and engineer-to-order customer orders.
Example:
A bill of materials for a standard chair
A static bill of materials is a fixed bill for standard assemblies. They use the same materials and components every time. An example of this is the building of a standard chair. The BOM would be the same every time so it would be a static bill of materials.

13. Types of BOMs Dynamic (parametric) bill Example:
A bill of material for a product or part for which size, color, laminate, and other options can be selected.
Example:
A bill of materials for a Dell computer
A dynamic bill can vary in the components that make up a product. An example of this type of BOM is for a Dell computer. For the most part the components are standard, but the customer can choose different features and so those parts will vary from project to project.

14. Types of BOMs Single level bill of material Example:
A bill of material that lists the materials, parts and labor required to make another part.
Example:
A bill of materials to make a Dell computer
A single level BOM lists the parts included in a single product like a Dell computer.

15. Types of BOMs Multilevel bill of material Example:
A bill of material that lists the components, assemblies, and materials required to make a part, the components, assemblies, and materials required to make each component and assembly of the part, and so forth.
Example:
A BOM for the battery inside the Dell computer.
To go deeper into a product, a multilevel BOM not only lists the parts of a product, but the parts of the components in the product. For example the BOM not only lists the parts in a Dell computer, but also the parts that are in the battery in the Dell computer. This information was found on the following website:

16. What information is on a BOM?
Quantity
Item ID#
Description of Item
Cost of Item
Total Project Cost
These five items are the most typical and important items on a BOM. Some examples provided later in the presentation do not follow this exact format because there is no standard format for a BOM. Each company needs to modify where needed to fit their individual needs. To illustrate a bill of materials, we will use the project of building a basic chair.

17. Quantity Tells user how many of each part is needed for each project
Example:
A chair needs 1 seat, 4 legs, 1 back, and 5 nails.
The quantity is one of the most important parts of the BOM because it tells us how many parts are needed for a project. The chair for example needs 1 seat, 4 legs, 1 back, and 5 nails to hold it together. The builder would not want to order 3 legs or forget to order the back on accident because the chair would not be finished correctly to order.

18. Item ID # Tells us which part to order Can be any of the following:
Catalog number, UPC, or any other identification number.
Example:
The chair needs a 2PC seat, 5DR legs, 6TU8 back, and 1 inch nails.
The item ID number tells us which type of part to buy. The numbers need to be exact for the correct part to be ordered. In our example the chair needs a specific type of seat, legs, back, and nails. The ID number can be a catalog number assigned by either the company or the vendor, or can be a type of UPC scan-able label.

19. Description of Item
Provides a check that the correct item is being ordered.
The description of the item is just a quick check to make sure all the parts were included. This way the user does not have to memorize each part by ID number. Instead, they can quickly scan the BOM and see that a seat, legs, back, and nails are included.

20. Cost of Item
Cost is included to show how much each part is per item and the total cost of all like parts.
Example:
The cost of a leg is $5 per leg. Then the total price of the legs ordered would be $20 because there are 4 legs.
The cost of the item lets the user know the cost per item. We can then figure out the cost for all like items. Because we only need 1 seat and 1 back, their cost for like items would be the same as the cost per item. The legs, however, have different costs because we are ordering more than one leg. In this example the legs are $5 each, so the total price of legs ordered are $20.

21. Total Project Cost
Shows the total cost of all items and is also the total cost of the direct materials used in the project.
Example:
Seat-$10, Back-$5, Leg-$5 per leg, Nail-$.5 per nail
Total Cost of a chair = *4 + .5*5 = $37.50
The total project cost may be included in some BOM to show the total cost of all the items being ordered. In our example, the total cost of the chair is $37.50.

22. BOM Example Quantity ID# Description Unit Price Total Cost
1 6TU8 Back $5/Unit $ 5.00
4 5DR Legs $5/Unit
1 2PC Seat $10/Unit
5 1” Nails $0.50/Unit
Total Project Cost $37.50
This is a sample BOM based on the examples provided in this tutorial

23. 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
Clipboard
Lapdesk
Lapboard
Pencil Case

24. MPS – „make to stock” EXAMPLE

25. MPS „make to order” - EXAMPLE

26. 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 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

27. On hand inventory can be calculated according to four following rules
- ZD1 = Zm
- ZD2 = Zm + ZT ZD2 = ZT
- ZD3 = (ZD1, ZD2) – R
- ZD4 = (ZD1, ZD2, ZD3) - ZZ
ZD1 – on hand inventory – 1st version
Zm – stock
ZD2 - on hand inventory – 2nd version
ZD3 - on hand inventory – 3rd version
ZD4 - on hand inventory – 4th version
Zt – stock in the transport
R- reservations of the material
Zz- safety stock

28. MRP Processes – 4 Basic Steps
Exploding the bill of material
___________________________________
Netting out inventory
Lot sizing rule – How many units
Time-phasing requirements

29. Lot Sizing Rules – Classic methods proposed by J
Lot Sizing Rules – Classic methods proposed by J. Orlicky – the will be explained in the next lecture
Fixed Order Quantity
Economic Order Quantity- EOQ
Lot for Lot
Fixed Period Requierements
Period Order Quantity- POQ
Least Unit Cost- LUC
Least Total Cost- LTC
Part Period Balancing- PPB
Wagner-Whitin algorithm

30. 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 = + -

31. 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

32. MRP Matrix Gross Requirements Scheduled Receipts Projected on Hand
ITEM NAME OR NO. PERIOD
LOT SIZE LT
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

33. Example MRP Matrix ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases

34. L4L LT=1 1 2 3 4 5 85 95 120 100 175 25 115 20 Time units (days)
Gross requirements 85 95
120
100
Scheduled receipts
175
On-hand stock 25
115 20
Net requirements
Planned delivery
Planned order release

35. MRP schedule Lead time – 3 weeks
Batching rule: Fixed order quantity – 25 pcs/lot
On-hand stock – 20 pcs/lot
Time units 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 15
On-hand stock 20
Net requirements
Planned delivery
Planned order release

36. MRP schedule 1 2 3 4 5 6 7 8 9 10 11 12 15 20 0/ 22 25 Time units
Gross requirements 15
On-hand stock 20 0/ 22
Net requirements
Planned delivery 25
Planned order release

37. LOT SIZE = 120 units/delivery Safety stock = 25 Lead time = 1 day, on hand = 100
days 1 2 3 4 5 6 7 8 9
Gross requirements 80
100
120
On-hand stock
Net requirements
Planned delivery
Planned order release

38. Example
Company X produce tables (production schedule given in table 1). Each table consists of a top, four legs. Each leg consists of 1 wooden beam, 2 fastenings, 1 pad. Each top consists of 2 boards, 4 fastenings. Each fastening consists of 1 dowel and 1 screw with cap.
The following table 2 gives lead times, on-hand inventory, lot size technique and scheduled receipts.
Construct a product structure (BOM)
Prepare a material planning schedule for the table

39. Table 1. Production schedule for the table
week 1 2 3 4 5 6 7 8
orders 80
110
125 55 75

40. Component Table Top Board Fastening Dowel Screw with cap Leg
Table 2. Data table
Component
Lead time
Lot size
On-hand inventory
Scheduled receipts
Table 1
EOQ = 100
100
Top
Lot for lot
Board 2
FOQ = 120 -
Fastening
FOQ = 180 50
Dowel
FOQ = 200
400
100 dowels in week 2
Screw with cap 3
EOQ = 150
200
Leg 30
Wooden beam
FOQ = 90
pad
FOQ = 150
120 pads in week 2

41. TABLE
EOQ= 100
LT=1
ON HAND = 100
MRP schedule
Week 1 2 3 4 5 6 7 8
Gross requirements 80
110
125 55 75
Scheduled receipts
Projected on hand 20 10 85 30 50 40
Net requirements 90
115 45 25 60
Planned order receipts
100
200
Planned order releases

42. TOP
L4L, LT=1, on hand=100
Week 1 2 3 4 5 6 7 8
Gross requirements
100
200
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases

43. 1 2 3 4 5 6 7 8 400 800 370 Week Gross requirements Scheduled receipts
LEGS
LT= 1
Lot for lot On hand= 30
GROSS REQUIREMENTS = PLANNED ORDER RELEASE FROM TABLE * 4 LEGS
Week 1 2 3 4 5 6 7 8
Gross requirements
400
800
Scheduled receipts
Projected on hand
Net requirements
370
Planned order receipts
Planned order releases

44. Fastenings LT=1. FOQ= 180, on hand = 50
Week 1 2 3 4 5 6 7 8
Gross requirements
800
400
740
1600
2400
1200
Scheduled receipts
Projected on hand 30
150
170 50
110
Net requirements
690
2370
1450
1030
1150
1090
Planned order receipts
720
(180*4)
(14*180)
2520
1620
1080
1260
Planned order releases

45. 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

46. Enterprise Resource Planning (ERP) An Overview
Organizes and manages a company’s 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

47. ERP Modules [Figure 12.1 Organizational Data Flow]

48. ERP Modules [Figure 12.2 ERP’s Central Database]
Finance & Accounting
Sales
& Marketing
Production & Materials Management
ERP Data Repository
Human Resources

49. 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