Material Requirement Planning

(MRP)

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Material Requirement 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 order
 Consider lead time

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When to use MRP
 ___________________________________
 ___________________________________
 ___________________________________
 ___________________________________
Dependent / Independent Demand?

Clipboard

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)
Finished clipboard Pressboard (1) 3
Demand Characteristics
Demand Characteristics for Finished Products and Their Components

Independent demand Dependent demand

100 x 1 =
100 tabletops

100 tables
100 x 4 = 400 table legs

400 – Continuous demand Discrete demand

400 –
300 –
No. of tables

300 –
200 – No. of tables
200 –
100 –
100 –

1 2 3 4 5
Week M T W Th F M T W Th F
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MRP Input & Output

Material
Requirements
Planning
(MRP)

Work Purchase Rescheduling 5

orders orders notices
 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
Clipboard
Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Pressboa Clip Rivet Rivets (2)

rd (1) Assembly s (2) Level 1 Finished clipboard Pressboard (1)
(1)

Top Bottom Piv Sprin

Clip (1) Clip (1) ot g (1) Level 2

(1) 6
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 1 2 3 4 5
Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
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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 07142 EOQ 316
Phantom code N Minimum order qty 100
Unit price/cost 1.25 Maximum order qty 500
Pegging Y Multiple order qty 8
LLC 1 Policy code 3
MRP Processes – 4 Basic Steps
1. Exploding the bill of material
 ___________________________________
1. Netting out inventory
 ___________________________________
 ___________________________________
1. Lot sizing rule – How many units
 ___________________________________
 ___________________________________
 ___________________________________
1. Time-phasing requirements
 ___________________________________

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Lot Sizing Rule Comparison
 The FOQ rule ___________
_______________________

 The POQ rule ___________

_______________________
_______________________
_______________________

 The L4L rule ___________

_______________________
_______________________
_______________________ 10
 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 on- Scheduled / Gross

Inventory at end hand at end of planned requirements
of period t
= period t - 1 + receipts in - in period t
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period t
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
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MRP Matrix
(You can download the template from our class webpage)

ITEM NAME OR NO. PERIOD

LOT SIZE LT 1 2 3 4 5
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

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Example MRP Matrix

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5
Gross Requirements 85 95 120 100 100
Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases

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 MRP Example 1
Given the following information, determine when
orders should be released for A, C, and D and the A
size of those orders
LT=3

C(3) D(2)
LT=4 LT=2
Parts On hand Scheduled Lot Size Demand
Receipts

A 10 0 L4L 100, period 8

C 140 0 Mult 50
D 200 250, period 2 Mult 250

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MRP Example 2

Given the following information,

determine when orders should A B
be released for A, B, C, and D LT=3 LT=2
and the size of those orders.
C(3) D(2) D(3)
LT=4 LT=2 LT=2
Parts On hand Scheduled Lot Size Demand
Receipts

A 10 0 L4L 100, period 8

B 5 0 L4L 200, period 6
C 140 0 Mult 50 -
D 200 250, period 2 Mult 250 -

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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

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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

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ERP Modules
[Figure 12.1 Organizational Data Flow]

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ERP Modules
[Figure 12.2 ERP’s Central Database]

Finance &
Accounting

Sales Production &

& ERP Data Materials
Marketing Repository Management

Human
Resources
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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

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