1. 6. Material Requirements Planning (MRP)
Homework problems: 2,6,7,8,9,13.

2. Material requirements planning (MRP):
1. MRP Foundation
Material requirements planning (MRP):
A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
The MRP is designed to answer three questions:
What is needed?
How much is needed?
When is it needed?

3. 1. MRP Foundation Dependent demand
Demand for items that are subassemblies or component parts to be used in the production of finished goods.
Dependent demand tends to be sporadic or “lumpy”
Large quantities are used at specific points in time with little or no usage at other times

4. 1. MRP Foundation

5. What went wrong when EOQ is used to manage a dependent demand item ?
Incorrect assumption of uniform, continuous demand
Incorrect assumption on item independence
Lack of Forward visibility

6. Overview of MRP

7. MPR Inputs Master Production Schedule (MPS) Bill of Materials (BOM)
Inventory Records

8. Product structure tree example

9. MRP Inputs: Inventory Records
Inventory records/status data
Includes information on the status of each item by time period, called time buckets
Information about
Gross requirements
Scheduled receipts
Expected amount on hand
Other details for each item such as
Supplier
Lead time
Lot size
Changes due to stock receipts and withdrawals
Canceled orders and similar events

10. MRP Record Gross requirements Total expected demand Scheduled receipts
Week 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected Available
Expected inventory on hand at the beginning of each time period

11. MRP Record Net requirements Actual amount needed in each time period
Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Net requirements
Actual amount needed in each time period
Planned-order receipts
Quantity expected to received at the beginning of the period offset by lead time
Planned-order releases
Planned amount to order in each time period

12. Manufacturing Planning and Control System
Resource
planning
Sales and operations
planning
Demand
management
Enterprise Resource Planning (ERP) System
Master production
scheduling
Front End
Inventory status data
Routing file
Bills of material
Detailed material
planning
Time-phased requirement (MRP) records
Detailed capacity
planning
Engine
Material and
capacity plans
Shop-floor
systems
Supplier
systems
Back End

13. MPR: Development
The MRP is based on the product structure tree diagram
Requirements are determined level by level, beginning with the end item and working down the tree
The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the children items directly below it.
The “children” items then become the “parent” items for the next level, and so on

14. PABt=PABt-1 + SRt + PRt - GRt
MRP: Updating PAB
PABt=PABt-1 + SRt + PRt - GRt
PAB: projected available balance
SR: scheduled receipts
PR: planned order receipts
GR: gross requirements

15. Basic MRP Record A previously released order due in period 1
Requirements from all sources
On hand
Period 1 2 3 4 5
Gross requirements 10 40
Scheduled receipts 50
Projected available balance (PAB) 54 44
Net requirements 6
Planned order receipts
Planned order releases
Lead time = 1 period
Lot size = 50
A unreleased order due in period 5

16. Bill of Materials
The BOM shows the components and sub-assemblies required to produce one unit of product

17. Indented Bill of Materials
Finished item is not indented
Level 2 sub-assemblies
Level 1 sub-assemblies
Level 1 components
Components and sub-assemblies are indented relative to their order of usage

18. Indented BOM example
Finished product is located at the top, components below
Sub-assemblies are represented by separate levels

19. MRP Explosion
Explosion–the process of translating product requirements into component part requirements
Considers existing inventories and scheduled receipts
Calculating the quantities of all components needed to satisfy requirements for any given part.
Continued until all parts have been considered, leading to exact requirements for all purchased and/or raw material parts

20. Gross and Net Requirements
Gross requirements represent the total planned usage for the part
Net requirements account for existing inventory and/or scheduled receipts
100 req’d – 25 inventory = 75 net req’d
Net req’d for assembly becomes gross req’d for component
75 req’d – 22 inventory – 25 sched. rec. = 28 net req’d

21. Product Structure Tree & Low level coding

22. Low-Level Coding Low-level coding
Restructuring the bill of material so that multiple occurrences of a component all coincide with the lowest level at which the component occurs X
B(2)
D(3)
E(4) E C
E(2)
F(2)
Level 0
Level 1
Level 2
Level 3

23. Low Level Coding Level 0 Level 1 Level 2
14127 Rivet is a common part. It belongs to Level 2, not 1.
Level 3

24. MPR Lot Sizing Rules (L4L)
Lot-for-Lot (L4L) ordering
The order or run size is set equal to the demand for that period
Minimizes investment in inventory
It results in variable order quantities
A new setup is required for each run

25. MPR Lot Sizing Rules (EOQ)
Economic Order Quantity (EOQ)
Also called fixed order quantity (FOQ)
Can lead to minimum costs if usage of item is fairly uniform
This may be the case for some lower-level items that are common to different ‘parents’
Less appropriate for ‘lumpy demand’ items because inventory remnants often result

26. MPR Lot Sizing Rules (POQ)
Fixed Period Ordering (POQ)
Provides coverage for some predetermined number of periods
When an order is planned (i.e., planned order receipts), it should be sufficient to cover the next P periods (e.g., p=3)

27. Example MRP

28. Example MRP: L-4-L ordering

29. Example MRP: EOQ

30. Lead Time Offsetting
Gross to net explosion shows how much of each part is required, but not when
Timing requires consideration of two factors
Lead times–how long does it take to obtain the component or sub-assembly
Precedent relationships–the order in which parts must be assembled
MRP considers both factors when developing the plan

31. Scheduling Logic Two common approaches to scheduling exist
Front schedule–schedule each step as early as possible. This approach is simple, but parts are scheduled (and finished) earlier than need be, thus increasing WIP inventory.
Back schedule–schedule each step as late as possible. This approach will reduce WIP, minimize storage (and time) of completed parts, reserve flexibility (postpone the commitment or raw materials to specific products), but it requires accurate BOM data and lead time estimation.

32. Scheduling Logic and MRP
MRP combines back scheduling and performs the gross requirements to net requirements explosion.
Reduced inventories
Minimized storage time

33. Back Scheduling
Top handle assembly has the longest duration of any sub-assembly
Scoop assembly must be complete before final assembly can begin
Only when all sub-assemblies and components are available can final assembly begin

34. MRP Records
Planned order release for top handle assembly becomes gross requirement for top handle component and nail (note 2 nails required per assembly)
Lot-for-lot order policy exactly matches supply to net requirements
Fixed lot size order policy requires orders in multiples of lot size

35. MRP Technical Issues
Processing frequency–recalculating all records and requirements is called regeneration
This is a computationally intensive process so it is often run in the background and during periods of low system demand
Net change approach only recalculates those records that have experienced changes
Less frequent processing results in an out-of-date picture
More frequent processing increases computer costs and may lead to system nervousness

36. Safety Stock & Safety Lead Time
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or assembly times are longer than expected
When lead times are variable, the concept of safety lead time is often used
Safety Lead Time (see Fig. 6.9)
Scheduling orders for arrival or completion sufficiently ahead of their need that the probability of shortage is eliminated or significantly reduced

37. Safety Stock & Safety Lead Time
Safety stock is buffer stock over and above the quantity needed to satisfy gross requirements
Used when quantity uncertainty is the issue
Safety lead time changes both the release and due date of shop and/or purchase orders to provide a margin for error
Used when timing of orders is the issue
Safety lead time is not just an inflated lead time

38. Pegging
Pegging provides a link between demand (order releases, customer orders, etc.) and the gross requirements for parts
Pegging records include the specific part numbers associated with a gross requirement
Pegging information can track the impact of a problem (e.g. material shortage) back to the order(s) it will affect

39. Firm Planned Orders
Regeneration of the MRP records can lead to large numbers of planned order changes
To avoid this, a planned order can be converted to a firm planned order (FPO)
An FPO is not the same as a scheduled delivery, but can’t be changed by the MRP system
Temporarily overrides the MRP system to provide stability or to solve problems

40. Planning Horizon Total amount of time included in MRP calculations
Longer planning horizon increases computational requirements
Shorter planning horizon may result in less-effective plans if significant future demand is not visible
At a minimum, should cover the cumulative lead time for all finished goods items

41. Scheduled Receipts vs. Planned Order Releases
Scheduled receipts represent an actual commitment (purchase order, production order, etc.)
Planned orders are only the current plan and can be changed more easily
Scheduled receipts for production orders already have component materials assigned
Scheduled receipts do not impact gross requirements
Planned order releases do not have component materials assigned
Planned order releases do impact gross requirements

42. MRP Processing Example
Note: Component D is required by two parents.

43. MRP Processing Example

44. MRP Planner Tasks Release Purchase orders
Shop floor (production) orders
Reschedule
Change due dates of existing orders (when desirable)
Analyze and Update
Set lot sizes and lead times
Adjust scrap allowances and safety stocks
Reconcile
Identify errors and inconsistencies and eliminate their root causes
Identify Problems
Take action now to prevent future crises
Solve Shortages
Adjust records and system parameters to prevent recurrence
Enhance
Identify system enhancements to improve performance

45. Exception Codes Separating the vital few from the trivial many
Part numbers with planned orders in the immediate period
Orders with unsatisfactory timing or quantity
Requirements that cannot be satisfied within system parameters (management input needed)

46. Bottom-Up Replanning
Using pegging data to guide efforts to solve material shortages
Pegging data allows the planner to take action only when actual customer orders are impacted

47. MRP System Output Part number and description MRP system data
MRP planning data
Exception messages

48. MRP System Dynamics MRP System Issues
Transactions during a period–unexpected changes
Rescheduling–moving the due date of an order to an earlier or later date
Complex transactions–inventory adjustments, service parts, etc.
Procedural inadequacies–situations the system wasn’t designed to handle

49. System Dynamics An MRP is not a static document As time goes by
Some orders get completed
Other orders are near completion
New orders will have been entered
Existing orders will have been altered
Quantity changes
Delays
Missed deliveries
See Figure 6.11,6.12,6.13

50. Principles
Effective use of an MRP system allows development of a forward-looking approach to managing material flows.
The MRP system provides a coordinated set of linked product relationships, which permits decentralized decision making for individual part numbers.
All decisions made to solve problems must be implemented within the system, and transactions must be processed to reflect the resultant changes.
Effective use of exception messages allows attention to be focused on the “vital few” rather than the “trivial many.”

51. 10. XYZ Company
Item A; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 71 46 49 55 52 47 51 48 56
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.
Item B; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 77 83 90 22 16 19 27 79
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.

52. 10. XYZ Company
Item A; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 71 46 49 55 52 47 51 48 56
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.
Item B; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 77 83 90 22 16 19 27 79
Scheduled Receipts
Proj. Available Bal.
150
Planned Order Rel.

53. 14. ABC Manufacturing Company
a. Component C (Q=40, LT=2, SS=0) 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release
b. Component C (Q=40, LT=2, SS=0) 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release