1. Materials Requirements Planning
Chapter 14
William J. Stevenson, 9th ed.

2. Independent and Dependent Demand
Independent Demand A
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Dependent Demand
Independent demand is uncertain. Dependent demand is certain.

3. Dependent Demand
Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.
Once the independent demand is known, the dependent demand can be determined.

4. Dependent vs Independent Demand
Time
Demand
Stable demand
“Lumpy” demand
Amount on hand
Safety stock

5. Material Requirements Planning Defined
Materials requirements planning (MRP) is a computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced.
It translates master schedule requirements for end items into time-phased requirements for subassemblies, components and raw materials.
Dependent demand drives MRP
MRP is a software system

6. When to Use MRP Dependent and discrete items Complex products
Job shop production
Assemble-to-order environments

7. Secondary reports Primary reports Exception reports Planning reports7
Firm orders
from known
customers
Forecasts
of demand
from random
Aggregate
production
plan
Bill of
material
file
Engineering
design
changes
Inventory
record file
transactions
Master production
Schedule (MPS)
Material
planning
(MRP
computer
program)
Primary reports
Secondary reports
Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices
Exception reports
Planning reports
Reports for performance control
The McGraw-Hill Companies, Inc., 2004

8. MRP System MRP Inputs MRP Processing MRP Outputs Master schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
transaction
Primary
Secondary

9. MRP Inputs 1: Master Production Schedule
Drives MRP process with a schedule of finished products; states which end items are to be produced, when these are needed, and in what quantities
Quantities may consist of a combination of customer orders & demand forecasts
Quantities represent what needs to be produced, not what can be produced

10. Master Production Schedule (MPS)
Time-phased plan specifying how many and when the firm plans to build each end item
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)

11. Master Production Schedule
Shows items to be produced
Derived from aggregate plan
Example:
Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31
Clipboard
Lapdesk
Lapboard
Pencil Case

12. MRP Inputs 2: Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

13. Product Structure Tree: Example 1
Chair
Seat
Legs (2)
Cross
bar
Side
Rails (2)
Back
Supports (3)
Leg
Assembly
Level 1 2 3

14. MRP Inputs 3: Inventory Records File
One of the three primary inputs of MRP
Includes information on the inventory status of each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more....

15. MRP Terminology (1 of 3) Gross requirements Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

16. MPR Terminology (2 of 3) Gross requirements Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected on hand
Expected inventory on hand at the beginning of each time period

17. MRP Processing Terminology (3 of 3)
Net requirements
Actual amount needed in each time period
Gross requirements – available inventory
Planned-order receipts
Quantity expected to be received at the beginning of the period
Offset by lead time
Planned-order releases
Planned amount to be ordered in each time period

18. MRP Processing Logic: Assembly Time Chart1 2 3 4 5 6 7 8 9 10 11
Procurement of
raw material D
raw material F
part C
part H
raw material I
Fabrication
of part G
of part E
Subassembly A
Subassembly B
Final assembly
and inspection
Weeks

19. Calculation of Gross Requirements40 50 15 A C B 5 6 7 8 9 10 11
Lead time = 4 for A
Master schedule for A 40 20 30 S B C 8 9 10 12 11 13
Lead time = 6 for S
Master schedule for S 10 1 2 3
Master schedule for S sold directly
Periods 10
40+10
= 50 40 50 20
15+30
= 45
Periods
Gross requirements: B
Therefore, these are the gross requirements for B

20. Basic MRP Processes Exploding the bill of material
Netting out inventory
Lot sizing
Time-phasing requirements

21. The MRP Matrix Gross Requirements
ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD
LOT SIZE QTY MADE IN LY - LEAD TIME
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

22. MRP Processing: Example 1-School Mate Products
Master Production Schedule
Clipboard
Lapdesk
Item Master File (ınventory record file
CLIPBOARD LAPDESK PRESSBOARD
On hand
On order 175 (Period 1) 0 0
(sch receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1

23. School Mate Products Product Structure Record Clipboard Lapdesk
Pressboard
(2)
Trim
(3’)
Beanbag
(1)
Glue
(4 oz)
Level 0
Clip Ass’y
Rivets
Level 1

24. School Mate Products 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

25. School Mate Products (25 + 175) = 200 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements 0
Planned Order Receipts
Planned Order Releases
( ) = 200 units available
( ) = 115 on hand at the end of Period 1

26. School Mate Products 115 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements 0 0
Planned Order Receipts
Planned Order Releases
115 units available
( ) = 20 on hand at the end of Period 2

27. School Mate Products 20 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases 100
20 units available
( ) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3

28. School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases

29. School Mate Products ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 20
Net Requirements
Planned Order Receipts
Planned Order Releases

30. School Mate Products
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
Following the same logic, the Lapdesk MRP matrix is completed as shown

31. School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases

32. School Mate Products x1 x2 ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases x2 x1
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases

33. School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases

34. School Mate Products Planned Order Report PERIOD ITEM 1 2 3 4 5
Clipboard
Lapdesk
Pressboard

35. MRP Processing: Example 2
B(1)
D(5)
C(2) X
C(3)
Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

36. X
A(2)
It takes 2 A’s for each X

37. X
A(2)
B(1)
It takes 1 B for each X

38. X
A(2)
B(1)
C(3)
It takes 3 C’s for each A

39. X
A(2)
B(1)
C(3)
C(2)
It takes 2 C’s for each B

40. X
A(2)
B(1)
C(3)
C(2)
D(5)
It takes 5 D’s for each B

41. MRP Outputs
Planned orders (schedule indicating the amount and timing of orders)
Work orders
Purchase orders
Order releases (authorization for the execution of planned orders)
Changes to previous plans or existing schedules (revision of due dates or order quantities, or cancellations of orders)
Action notices
Rescheduling notices

42. Updating the MRP System
Regenerative system
Updates MRP records periodically
Net-change system
Updates MPR records continuously

43. MRP Secondary Reports Performance-control reports Planning reports
Exception reports

44. Other Considerations Safety Stock Lot sizing
Lot-for-lot ordering (L4L)
Economic order quantity
Part Period Balancing
Wagner-Whitin algorithm
& others
Which one to use? The one that is least costly!

45. MRP in Services
Can be used when demand for service or service items is directly related to or derived from demand for other services
Food catering service
End item => catered food
Dependent demand => ingredients for each recipe, i.e. bill of materials
Hotel renovation
Activities and materials “exploded” into component parts for cost estimation and scheduling

46. Benefits of MRP Reduced inventories without reduced customer service
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Increased customer satisfaction due to meeting delivery schedules
Faster response to market changes
Improved labor and equipment utilization.
Better inventory planning and scheduling

47. Requirements of MRP Computer system and necessary software
Mainly discrete products
Stable lead times
Accurate and up-to-date
Master schedules
Bills of materials
Inventory status records
Integrity of data

48. Extensions of MRP

49. Extensions of MRP Closed loop MRP Capacity planning - load reports
MRP II - Manufacturing Resources Planning
Enterprise Resources Planning

50. MRP and The Production Planning Process
Forecast &
Firm Orders
Material
Requirements
Planning
Aggregate
Production
Resource
Availability
Master
Scheduling
Shop
Floor
Schedules
Capacity
Realistic?
No, modify MPS
Yes

51. Closed Loop MRP

52. Manufacturing Resources Planning- MRP II
Expanded MRP with emphasis placed on integration of:
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Human resources

53. Manufacturing Resources Planning (MRP II)
Goal: Plan and monitor all resources of a manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system

54. MRP II Market Demand Production plan Problems? Yes No Finance
Rough-cut
capacity planning
Yes No
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity req.
planning
Requirements
schedules
Adjust master schedule

55. Enterprise Resource Planning (ERP)
The next step in the evolution that began with MRP and evolved into MRP II
ERP system is a computer system that integrates application programs in accounting, sales, manufacturing, human resources and other functions in the firm.
ERP provides a system to capture and make data available in real time do decision makers and other users in the organization

56. ERP
MRP II with ties to customers and suppliers (connects with supply-chain and customer management applications)
Integrates financial, manufacturing and human resources on a single computer system.
Provides tools for planning and monitoring various business processes

57. Enterprise Resource Planning (ERP)
Attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs
Organizes and manages a company’s business processes by sharing information across functional areas
Standardized record-keeping permit information sharing and communication throughout the organization

58. Enterprise Resource Planning - ERP
Such an integration is accomplished through a database shared by all the application programs

59. ERP ERP allows companies to:
Automate and integrate many of their business processes
Share a common database and business practices throughout the enterprise
Produce information in real time
ERP systems also include:
Supply Chain Management software and
Customer Relationship Management software

60. ERP Modules

61. ERP’s Central Database
Finance & Accounting
Sales
& Marketing
Human Resources
Production & Materials Management
ERP Data Repository

62. ERP Strategy Considerations
High initial cost
High cost to maintain
Future upgrades
Training