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Material Requirement Planning (MRP)

Chapter 16Feb 9, 2006

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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 ___________________________________ ___________________________________ ___________________________________ ___________________________________

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)Finished clipboard Pressboard (1)

Clipboard

Dependent / Independent Demand?

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Demand Characteristics

11 22 33 44 55WeekWeek

400 400 –

300 300 –

200 200 –

100 100 –No

. o

f ta

ble

sN

o.

of

tab

les

Continuous demandContinuous demand

M T W Th F M T W Th FM T W Th F M T W Th F

400 400 –

300 300 –

200 200 –

100 100 –No

. o

f ta

ble

sN

o.

of

tab

les

Discrete demandDiscrete demand

Independent demandIndependent demand

100 tables100 tables

Dependent demandDependent demand

100 x 1 = 100 x 1 = 100 tabletops100 tabletops

100 x 4 = 400 table legs100 x 4 = 400 table legs

Demand Characteristics for Finished Products and Their Components

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MRP Input & Output

MaterialRequirements

Planning (MRP)

Work orders

Purchase orders

Rescheduling notices

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Major Inputs to MRP Process:1. Bill of Material

Product structure file Determines which component items need to be scheduled

Product Structure RecordProduct Structure Record

ClipboardLevel 0Level 0

Level 1Level 1

Level 2Level 2Spring (1)

Bottom Clip (1)

Top Clip (1)

Pivot (1)

Rivets (2)

Clip Assembly

(1)

Pressboard (1)

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)Finished clipboard Pressboard (1)

Clipboard

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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

PERIODMPS ITEM 1 2 3 4 5

Clipboard 85 95 120 100 100Lapdesk 0 50 0 50 0Lapboard 75 120 47 20 17Pencil 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

LLC 1 Policy code 3

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MRP Processes – 4 Basic Steps

1. Exploding the bill of material ___________________________________

2. Netting out inventory ___________________________________ ___________________________________

3. Lot sizing rule – How many units ___________________________________ ___________________________________ ___________________________________

4. Time-phasing requirements ___________________________________

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Lot Sizing Rule Comparison The FOQ rule ___________

_______________________

The POQ rule ___________ _______________________ _______________________

_______________________

The L4L rule ___________ _______________________ _______________________

_______________________

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MRP Matrix

Gross Requirement Derived from planned order releases of the parent Actual / estimated demand, in case of final productSchedule Receipts Items on order Scheduled to arrive in the future time periodProjected on hand Current inventory, or anticipated inventory at the end of period

Projected on-handInventory at end of period t

Projected on-handInventory at end of period t

Inventory on-hand at end of period t - 1

Inventory on-hand at end of period t - 1= +

Scheduled / planned receipts in period t

Scheduled / planned receipts in period t

-

Gross requirements in period t

Gross requirements in period t

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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)

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

ITEM NAME OR NO. PERIODLOT SIZE LT 1 2 3 4 5

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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

Example MRP Matrix

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MRP Example 1

Given the following information, determine when orders should be released for A, C, and D and the size of those orders

Parts On hand Scheduled Receipts

Lot Size Demand

ACD

10140200

00250, period 2

L4LMult 50Mult 250

100, period 8

ALT=3

C(3)LT=4

D(2)LT=2

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MRP Example 2

Given the following information, determine when orders should be released for A, B, C, and D and the size of those orders.

Parts On hand Scheduled Receipts

Lot Size Demand

ABCD

105

140200

000

250, period 2

L4LL4L

Mult 50Mult 250

100, period 8200, period 6

--

ALT=3

C(3)LT=4

D(2)LT=2

BLT=2

D(3)LT=2

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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 &

Marketing

Human Resources

Production & Materials

ManagementERP Data

Repository

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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