In this presentation, we will discuss material planning systems and its evolution. Overview on MRP processes, its objectives and types of demands. We will also talk about the various terminologies like bills of material, inventory record, operating logics, MRP explosion process, capacity requirement planning. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. Production Planning
& Control
Chapter 3
Resource Requirement Planning
Chapter3 1

2. Evolution of Material Planning Systems
Back in the sixties, manufacturing planning systems
were reorder point systems that simply determined
when and how much to order
First MRP systems translated a master schedule of final
products into time-phased net requirements for
subassemblies, assemblies, and parts
Closed-loop MRP included production planning,
master scheduling, and capacity requirements
In mid 1970’s, MRPII systems added functionality to
plan and execute all internal functions
Chapter3 2

3. Material Requirements Planning
(MRP)
Computer-based information system that
schedules and orders dependent-demand
inventory components;
Uses the master production schedule, bills of
materials, and inventory records as inputs;
Outputs recommendations:
– When to release new orders.
– When to reschedule open orders.
Chapter3 3

4. An Overview of MRP
MRP uses the concept of backward scheduling to determine how
much and when to order and replenish
The CPR module checks to make sure the scheduled work load
profile is feasible
The MPS module contains the authorized schedule
The BOM module contains the product structure for each unique
product
The Inventory Record module keeps track of the inventory
status for each item in the database
MRP output includes schedules for all internal activities and
parts as well as orders for all supply chain items
Chapter3 4

6. MRP System
Chapter3 6

7. Input/Output - MRP Process
Chapter3 7

8. MRP Inputs
1. A master production schedule
2. A Bill of Materials
3. An inventory records file
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Pr e m
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T ea
L

11. MRP Inputs
Bill of materials (BOM): a listing of all of
the raw materials, parts, subassemblies,
and assemblies needed to produce one unit
of a product.
Each finished product has its own bill of
materials.
Product structure tree: Visual depiction of
the requirements in a bill of materials,
where all components are listed by levels.

12. MRP Inputs
Bill of materials (BOM):
The BOM identifies, how each end product is
manufactured, specifying all subcomponent items,
their sequence of buildup, their quantities in each
finished unit, and which work centers perform the
buildup sequence in the facility.
This information is obtained from product design
documents, work flow analysis, and other standard
manufacturing and industrial engineering
documentation.

13. MRP Inputs
Bill of materials (BOM):

14. MRP Inputs
Inventory records:
Includes information on the status of each
item by time period:
•Gross requirements
•Scheduled receipts
•Expected amount on hand
•Lead time
•Lot size policy
•And more …

15. MRP Outputs
Planned orders - Schedule indicating
the amount and timing of future orders.
Order release - Authorization for the
execution of planned orders.
Changes - revisions of due dates or
order quantities, or cancellations of
orders.

16. MRP Outputs
Performance-control reports evaluate
system operations.
Planning reports are useful in forecasting
future inventory requirements.
Exception reports call attention to major
discrepancies.

17. Types of Demand
There are two types of demand.
Independent Demand
– Is the demand for finished products
– Does not depend on the demand of other products
– Needs to be forecasted
Dependent Demand
– Is the demand derived from finished products
– Is the demand for component parts based on the
number of end items being produced and is
managed by the MRP system
Chapter3 17

18. MRP
Responds to the fundamental manufacturing
equation:
– What are we going to make?
» Master production schedule.
– What does it take to make it?
» Bill of materials.
– What have we got?
» Inventory records.
– What do we have to get?
» Material Requirements plan: planned orders.
Chapter3 18

19. Objectives of MRP
Determines the quantity and timing of
material requirements
– Determines what to order (checks BOM), how
much to order (lot size rules), when to place the
order (needed date minus lead time), and when to
schedule delivery (on date needed)
Maintain priorities
– In a changing environment, MRP reorganizes
priorities to keep plans current and viable
Chapter3 19

20. Building a CD Cabinet With MRP
Chapter3 20

21. MRP Inputs - Authorized MPS
From the authorized MPS, we calculate when we need to
have replenishment orders of CD cabinets; when we need a
new MPS order.
Table 14-1 Initial MPS Record for CD Cabinet
Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35
Projected Available: 80 55 30 5 -20
MPS
Table 14-2 Updated MPS Record for CD Cabinet
Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35
Projected Available: 80 55 30 5 80 50 20 90 60 25 90 55 20
Chapter3 21
MPS 100 100 100

22. MRP Inputs-Inventory Records
System checks the inventory record for each BOM item to see if
inventory is available or if a replenishment order is needed to build the
cabinets.
Table 14-3 First Inventory Record for CD Cabinet
Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 -100
Planned Orders
Table 14-4 Updated Inventory Record for CD Cabinet
Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned Orders 100Chapter3 100 100 22

23. MRP Inputs-Bills of Material
A BOM lists all of the items
needed to produce one CD
cabinet
The BOM is exactly like a
recipe for baking a cake
The BOM’s must be
complete and accurate and
can only be changed by an
ECN
MRP BOM’s are indented
bills of materials
Chapter3 23

24. Bill of Materials (BOM)
Contains product description (components) and
sequence of assembly.
Also called product structure or product tree.
Levels: end item at 0, assemblies for end item at
1, subassemblies for assemblies at 2, etc.
Low-level coding: placing identical items used
for multiple purposes at the same level.
Chapter3 24

25. A Product Structure Tree
Chapter3 25

26. Inventory Records
Contains
information about
each inventory
item and its status
(e.g., on-hand
balance).
Chapter3 26

27. Inventory Record
Gross requirements:
– The total period demand for the item
Scheduled receipts:
– An open order with an assigned due date
Projected available:
– The projected inventory balance for the period
Planned orders:
– Quantities & released dates suggested by the
MRP system
Chapter3 27

28. MRP System Inputs
Master production Schedule
The MPS specifies what end products are to
be produced and when .
The planning horizon should be long enough
to cover the cumulative lead times all
components that must be purchased or
manufactured to meet the end product
requirement
Chapter3 28

29. Lot Sizing Rules
Rules are used to change the frequency of
replenishment orders & set the quantity of each
order (balance holding & ordering costs to
reduce total costs)
Common rules:
– Fixed Order Quantity (FOQ)
– Lot-for-Lot (L4L)
– Periodic Order Quantity (POQ)
Chapter3 29

30. MRP Terms
Time bucket: period, usually 1 week.
Planning horizon: number of periods.
Lead time offset: offsets a planned order release
from a required replenishment.
Net requirement: difference between the gross
requirements and the available inventory.
Chapter3 30

31. Definitions
End item:
– The product sold as a completed item or repair
part (an independently demanded item)
Parent items:
– Items produced from one or more “children”
Components:
– Raw materials & other items (“children”) that are
part of a larger assembly
Chapter3 31

32. Definitions
Time buckets:
– The column in an inventory record that represents a
unit of time
Action bucket:
– The current time period
Action notices:
– Output from the MRP system identifying the need
for an action (e.g.: expedite or delay an order or
receipt)
Chapter3 32

33. Example
Inventory Record for Pie Safe
Item: Pie Safe
Lot size rule: L4L
Lead time: 1 week
0 1 2 3 4 A 5Time Bucket
6 7 8 9 10 11 12
Gross requirements 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled receipts 100 100 100
Projected available 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned orders 100 100 100
Chapter3 33

34. Operating Logic
Explosion:
– Calculate the children’s time-phased gross
requirements by multiplying the parent item’s
planned order amount by the number of children
required to produce one parent item
Chapter3 34

35. The MRP Explosion Process
Table 14-6 Updated Inventory Record for CD Cabinet
Item: CD Cabinet Parent: none
Lot size rule: L4L Children: Top, bottom, door, left side, right side, shelves, shelf supports
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0
Scheduled Receipts:
Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned Orders: 100 100 100
Using table 14-6 and the product structure tree, we will work
through an example of how the MRP explosion process would
calculate the requirements for building a CD cabinet. On the
next slide we start with the cabinet top to illustrate how MRP
calculates the gross requirements for this component.
Chapter3 35

36. Inventory Records - Components
It was noted on the previous slide that the parent item (CD Cabinet) has
planned orders in periods 3, 6, and 9.
Its children (top, bottom, door, left & right side, shelves, and supports)
have gross requirements in periods 3, 6, and 9.
Chapter3 36

37. Inventory Records - Components
Chapter3 37

38. Inventory Records– Components (cont.)
Chapter3 38

39. Inventory Records– Components (cont.)
Chapter3 39

40. Inventory Records – Remaining Components
Chapter3 40

41. Inv. Records – Remaining Components (cont.)
Chapter3 41

42. Inv. Records – Remaining Components (cont.)
Chapter3 42

43. Example Comparing Lot Size Rules: Three common lot sizing
rules used within MRP Systems are fixed order quantity (FOQ), lot for lot
(L4L), and period order quantity (POQ). Cost comparison is based on
Inventory holding costs ($0.10 per period) and ordering cost ($25 per
order). In this example POQ is best at $133.50.
Chapter3 43

44. Capacity Requirements
Planning (CRP)
Similar to rough cut capacity planning
CRP is a feasibility check on labor & machine
utilization:
– Compare the open orders & planned orders (from
the MRP) to the actual shop floor capacity
Chapter3 44

45. Rough Cut Capacity Example: The CRP module uses data from MRP. We
calculate workloads for critical work centers based on open shop orders and
planned shop orders. These shop orders are translated into hours of work by
work center and by time period.
Table 14-11 show items scheduled for work Center 101.
A B C D E F G
1 Table 14-11 Workload for Work Center 101
2 Run Time Total
3 Setup per Unit in Item Weekly
4 Item Time Standard Time Workload
5 Period Number Quantity (hours) Hours (hours) (hours)
6 4 DN100 250 3.0 0.20 53.0
7 DP100 250 5.0 0.18 50.0
8 DS119 150 2.5 0.30 47.5
9 DT136 400 3.5 0.27 111.5 262.0
10 5 EQ555 1000 8.0 0.08 88.0
11 ER616 500 4.0 0.22 114.0
12 ES871 100 2.0 0.35 37.0 239.0
13 6 FA314 250 3.0 0.30 78.0
14 FF369 100 1.5 0.12 13.5
15 FR766 50 0.5 0.15 8.0
16 FS119 200 3.0 0.35 73.0
17 FY486 500 6.0 0.27 141.0 313.5
Available = 4 machines x 2 shifts x 10 hours x 5 days x 0.85 utiliza- x 0.95 effi-
Capacity per shift per wk. tion ciency
Available = 323.0 standard hours
Chapter3 45
Capacity

46. Workload Graph for Work Center 101: CRP enables a
company to evaluate both the feasibility of the MRP system and how well
the company is using its critical work centers.
Chapter3 46

47. Issues in MRP
Some of the issues which deserve consider
ration in any comprehensive treatment of MRP
are:
Safety stock ,Lot-sizing , Scrap allowance
Pegging , Cycle counting
Updating
Time fence
Chapter3 47

48. MRP System—Other Issues
Safety stock: There are divergent views
regarding whether the safety stock is used or not
One side of argument supporting the use of
safety stock is that it performs the function of
avoiding excessive shock outs caused by certain
lead times &daily demand.
On the other hand those who oppose the use of
safety stock argues that safety stock is not
required because MRP system adopts to
changing conditions that affect demand and lead
times Chapter3 48

49. MRP System Issues-Lot Size
Lot size : The MRP system generates Planned
order release, which triggers purchase orders for
outside suppliers , or production orders(WO)
Various methods of Lot sizing
– Lot-for-lot (L4L or LFL): lot size matches net
requirements.
– Least total cost (LTC): calculates a lot size that
equalizes holding and ordering costs.
– Least unit cost (LUC): averages the LTC across the
lot size.
Chapter3 49

50. MRP System Issues-Lot Size
The lot size may be determined by the period
order quantity(POQ) Technique.
POQ = No of weeks per year
No of orders per year
= N
D/Q
D=Annual demand
Q=Economic Order quantity
N=Number of Weeks per year
Chapter3 50

51. MRP System Issues Scrap
Allowance
Scrap allowance: The bill of material
explosion could include multiplication by a
factor (more than one) to make an allowance
for usual scrap loss in manufacturing an item.
Chapter3 51

52. MRP System Issues -Pegging
The MRP Pegging system is a new set of commands
for your MG system which are designed to assist you
with your analysis of your MRP run.
The MRP pegging system copies the MRP information
into an easy to access image data base for inquires by
users. A data base guide, and schemas are provided
to users that may want to write their own inquires.
The utility also contains logic to determine if this is a
new MRP suggestion or a suggestion that has appear
on previous MRP runs. We keep track of which
suggestions are new and the age of which
suggestions have not been addressed.
The system provides the Manman user with the
following new features:
Chapter3 52

53. MRP System Issues -Pegging
Net Change MRP report - by selecting only new
MRP suggestions, we can provide information on
only what has changed since the last MRP run
MRP Volatility - the system tracks the number of
new MRP messages generated and the number of
MRP suggestions processed
List Component Pegging The system provides a
list command that provides a multi-level view of
where demand is coming from.
Combination Order Action / Reschedule report
Chapter3 53

54. MRP System Issues –Cycle Counting
"Cycle counting is truly a powerful working tool for
maintaining inventory record accuracy,"
"Finding erroneous records, sleuthing their causes, and
correcting these causes are the power base of cycle
counting." However, they find that sleuthing error causes is
frequently ignored as the process is not well understood or
easy to perform.
Brooks and Wilson, both of whom are consultants with the
Oliver Wight organization, also delve into a lengthy
discussion and analysis of inventory tactics versus
inventory control.
"It is important to recognize the impact that inventory tactics
have on control issues," they explain. "Inventory tactics
must be decided upon first before any inventory control
issues are addressed
Chapter3 54

55. MRP System Issues –Cycle Counting
." They identify and describe, by example, the
various elements of both inventory tactics and
inventory control. Inventory Record Accuracy,
Second Edition, describes how to establish and
maintain inventory record accuracy in a Lean
environment and covers new topics such as RFID
and supplier/vendor-managed inventory.
Additionally, Brooks and Wilson have significantly
expanded their explanation of inventory record
tolerances and added a number of graphical
displays and visuals to enhance the understanding
of establishing tolerances.
Chapter3 55

56. Benefits of MRP
Low levels of in-process inventories.
The ability to keep track of material
requirements.
The ability to evaluate capacity requirements
generated by a given master schedule.
A means of allocating production time.
Chapter3 56

57. MRP II
Manufacturing Resources Planning (MRP II):
II)
Expanded MRP with emphasis placed on
integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
Chapter3 57

58. MRP II
Market Master
Finance Manufacturing
Demand production schedule
Adjust master schedule
Marketing
Production
plan MRP
Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
Chapter3 58

59. Problems in MRP
Training: The workers have to be trained to learn and
become proficient with a new system and its processes.
Integration and testing: Integrating the computer
systems associated with different areas of the firm and
testing the links between various corporate areas and
systems.
Data conversion and data analysis
Consultant fees
Solving implementation problems on an ongoing basis
Dealing with disappointing short-term results
Competition for high quality workers especially in the
IT field . Chapter3 59

60. Close loop MRP
Manufacturing
Business Plan
Purchase
Production Plan
Master Schedule Engineering
Rough cut capacity Plan Marketing
Material
Requirement Plan
Finance
Detailed
Capacity plan
Accounting
Shop floor Control Chapter3
Chapter3 60

61. Resource Requirement Planning
End Of
Chapter 3
Chapter3 61

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