Material Requirements

Planning (MRP)
 Material Requirements Planning
(MRP)
Computer-based information system that schedules
and orders dependent-demand inventory components
Ex: demand for frames, pedals and rims dependent on
production of complete bicycle

MRP objective: releasing new production orders,

adjusting order quantity and expediting late orders
Uses the master production schedule, bills of
materials, and inventory records as inputs
 Relation between independent-
dependent demand
A bicycle manufacturing company follows the policy
of manufacturing 1000 units of bicycles as soon as its
bicycle inventory reaches 500 units.
Inventory

R=500

3 5 8 10 Days
 Dependent demand distribution
Though the demand for bicycle is roughly constant
but the demand for rim is lumpy and non-uniform

2000
Inventory

3 5 8 10
Days
Independent and Dependent Demand
Independent Demand

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
 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.
 Benefits of MRP
It helps in forecast of dependent and
independent demand with accuracy and thus
helps in reducing inventory level
It helps in planning for better utilization of
capacities and other resources
It improves customer service level by
accurately forecasting dependent and
independent demand requirements
 Requirement of MRP
1) Bill of Materials:
A record of all components of an item, the parent
component relationships and the usage quantities
derived from engineering and process design.
2) Master Production schedule:
A part of material requirement plan that details how
many end items will be produced within specified
period of time.
3) Inventory Record
A record that shows an items lot size policy, lead time and
various time-phased data.
Schematic of MRP System
Products are combinations of parts

Example: Bicycle

Handle bars (1)

Metal Frame (1)

Wheels/Rims (2)
 Planning Horizon

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10

Weeks
 MRP Processing Logic:
Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Weeks
 MRP Terminology

Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
 MPR Terminology
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
 MRP Processing Terminology
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

Planned-order releases
Planned amount to be ordered in each time period
Lets look at an example BOM...

Question:
How many Ds we need in order
to produce 50 As?

B(2) C(1)

D(3) E(3) D(1)

How do we manage order release?

We need information on delivery times!

Parts-Product Process Lead Time,

(days)
A 10
B 15
C 10
D 15
E 10
Lets look at an example BOM...
(10)
A

Question:
When do we start
producing/ordering each part?

B(2) (15) C(1) (10)

(15)

(10) (15)
D(3) E(3) D(1)
Lets assume that we need 50 units of A

Delivery date
for final
product
5 days

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Start
assembly for
50 units of A

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Start
assembly for
100 units of B

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Start
assembly for
50 units of C

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Order 150
units of D for
Bs process

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Order 50
units of D for
Cs assembly

Parts-Products
A
B
C
D
E
Lets assume that we need 50 units of A

Order 150
units of E for
Cs assembly

Parts-Products
A
B
C
D
E
 Summary: How does MRP work?

Material Requirements Planning

Production

Assembly
Customer Production
Assembly
Production

Units are PUSHED forward according to the plan!

What about JIT/Lean Production?

Production

Assembly
Production Customer
Assembly
Production

Units are PULLED forward only when needed!

Push/Pull Decoupling Point

Material Requirements Planning

Cheeseburger
Hamburger
Patties
Forecast Hamburger
Chicken
Patties Chicken
Sandwich

Units are PUSHED forward to a certain point. Final

configuration (PULL) occurs only when the actual
customer demand occurs.
 Enterprise Resource Planning (ERP)
ERP: is a process by which a company (often a manufacturer) manages and
integrates the important parts of its business.
An ERP management information
system (software) integrates areas
such as planning, purchasing,
inventory, sales, marketing,
finance and human recourses.
ERP can improve quality and
efficiency of the business.
ERP supports upper level management
by providing information for decision
making.