Material Requirements Planning
Alok Raj
PODS Area
Office: Room No 14, 2nd Floor, Library Building, Tel. 3439
Email: [email protected]
Material Requirements Planning
Forecasting
Workforce
Supply Chain support
Aggregate
Planning
Master
production
Inventory on hand
External Capacity
Scheduling
Material Requirements Planning
Months January February
Aggregate Plan 1,500 1,200
(Shows the total
quantity of amplifiers)
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
(Shows the specific type and
quantity of amplifier to be
produced)
240-watt amplifier 100 100 100 100
150-watt amplifier 500 500 450 450
75-watt amplifier 300 100
Material Requirements Planning
❖ Specifies what is to be made and when
❖ Must be in accordance with the aggregate production
plan
❖ Inputs from financial plans, customer demand,
engineering, labor availability, inventory fluctuations,
supplier performance
❖ As the process moves from planning to execution, each
step must be tested for feasibility
Material Requirements Planning
❖ Material requirements planning (MRP): The logic for
determining the number of parts, components, and materials
needed to produce a product.
❖ It is for dependent demand.
⦁ Dependent demand
⦁ Independent demand
❖ MRP is more applicable in case of batch production and
assembly operations.
❖ Centralized control and coordinated scheduling and production
of all items that are used to produce the end product.
MRP Inputs & Outputs
Master Production
Schedule
Bill of materials Gross requirements
Scheduled receipts Projected inventory
MRP
Current inventory Net requirements
Explosion
status
Planned order
Lead time release
Ordering policy
Master Production Schedule (MPS)
A schedule that defines what finished goods to produce, how much, and when.
Scenario: A Laptop Manufacturing Company
MPS: Determines that 5,000 laptops need to be produced in the next month.
MRP: Breaks this down into required components (e.g., 5,000 screens, 5,000
batteries, 10,000 RAM sticks) and calculates when to order them based on lead
times.
Bill of Materials (BOM)
❖ List
of components, ingredients, and materials
needed to make product
❖ Provides product structure
✓ Item has at least one level below parents
✓ Item has at least one level above components
Product Structure Tree
Level Bill of Quantity
materials
0 Chair 1
1 Leg assembly 1
2 Legs 2
2 Cross bar 1
1 Seat 1
1 Back assembly 1
2 Side rails 2
2 Cross bar 1
2 Back supports 3
BOM Example
Level Product structure for “Awesome” (A)
0 A
1 B(2) C(3)
2 E(2) E(2) F(2)
3 D(2) G(1) D(2)
BOM Example
For an order of 50 Awesome speaker kits
Part B: 2 x number of As = (2)(50) = 100
Part C: 3 x number of As = (3)(50) = 150
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
Part E: 2 x number of Bs
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2 x number of Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300
Current inventory status
❖ A dynamic list of currently available on-hand inventory for each item.
❖ Changes continuously.
Scheduled receipts
❖ For each item, if any open orders exist, as on date?
❖ How much is due, when will it be available to use?
❖ There might be multiple open orders, on date.
Knowledge of lead time
❖ Time between initiation of an order to having
the item available for use.
❖ Weakness of MRP – lead time taken as
deterministic.
❖ Useful to have info on values such as
minimum possible, expected and upper
bounds, to make adjustments.
Lead Times for Components
► The time required to purchase, produce, or assemble
an item
► For production – the sum
of the move, setup, and COMPONENT LEAD TIME
A 1 week
assembly or run times
B 2 weeks
► For purchased items – C 1 week
the time between the D 1 week
recognition of a need E 2 weeks
and when it's available F 3 weeks
for production G 2 weeks
Time-Phased Product Structure
Must have D and E
Start production of D completed here so
production can begin
on B
1 week
2 weeks to
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | |
1 2 3 4 5 6 8
Time in 7weeks
Time-Phased Product Structure
❖ Starts with a production schedule for the end item – 50
units of Item A in week 8
❖ Using the lead time for the item, determine the week in
which the order should be released – a 1-week lead
time means the order for 50 units should be released in
week 7
❖ This step is often called "lead time offset" or "time
phasing"
Time-Phased Product Structure
❖ From the BOM, every Item A requires 2 Item Bs – 100
Item Bs are required in week 7 to satisfy the order
release for Item A
❖ The lead time for the Item B is 2 weeks – release an
order for 100 units of Item B in week 5
❖ The timing and quantity for component requirements
are determined by the order release of the parent(s)
Time-Phased Product Structure
❖ The process continues through the entire BOM one
level at a time – often called "explosion"
❖ By processing the BOM by level, items with multiple
parents are only processed once, saving time and
resources and reducing confusion
❖ Low-level coding ensures that each item appears at
only one level in the BOM
Determining Gross Requirements
Gross Material Requirements Plan for 50 Awesome Speaker Kits (As) with Order Release Dates Also Shown
WEEK
LEAD
1 2 3 4 5 6 7 8 TIME
A. Required date 50
Order release date 50 1 week
B. Required date 100
Order release date 100 2 weeks
C. Required date 150
Order release date 150 1 week
E. Required date 200 300
Order release date 200 300 2 weeks
F. Required date 300
Order release date 300 3 weeks
D. Required date 600 200
Order release date 600 200 1 week
G. Required date 300
Order release date 300 2 weeks
Inventory records
❖ Includes information on the status of each item by time period,
called time buckets
⦁ Information about
Gross requirements
Scheduled receipts
Expected amount on hand
⦁ Other details for each item such as
Supplier
Lead time
Lot size policy
Changes due to stock receipts and withdrawals
Canceled orders and similar events
MRP Record
Week Number 1 2 3 4 5 6 Gross requirements(Gt)
• Total amount required for a particular item
Gross Scheduled receipts(St)
• Orders that have already been released and that
Requirements
are scheduled to arrive as of the beginning of the
period
Scheduled Projected Available balance(Pt)
Receipts • Amount of inventory expected as of the end of a
period.
Projected on Net requirements
Available balance • The amount needed when the projected available
balance plus the scheduled receipts in a period
Net requirements are not sufficient to cover gross requirement
Planned-order receipts(Pot)
• The amount of an order that is required to meet a
Planned-order-
net requirement in the period
receipt Planned-order releases
• The planned order receipt offset by the lead time
Planned-order
release
ITEM ON HAND ITEM O0N HAND
A 10 E 10
B 15 F 5
C 20 G 0
D 10
2 × number of As = 80
3 × number of As = 120
Net Requirements Plan
2 × number of Bs = 130
2 × number of Cs = 200
2 × number of Cs = 200
2 × number of Bs = 130
2 × number of Fs = 390
1 × number of Fs = 195
Determining Net Requirements
❖ Starts with a production schedule for the end item – 50
units of Item A in week 8
❖ Because there are 10 Item As on hand, only 40 are
actually required – (net requirement) = (gross
requirement – on-hand inventory)
❖ The planned order receipt for Item A in week 8 is 40
units – 40 = 50 – 10
Determining Net Requirements
❖ Following the lead time offset procedure, the planned
order release for Item A is now 40 units in week 7
❖ The gross requirement for Item B is now 80 units in
week 7
❖ There are 15 units of Item B on hand, so the net
requirement is 65 units in week 7
❖ A planned order receipt of 65 units in week 7
generates a planned order release of 65 units in week
5
Determining Net Requirements
❖ The on-hand inventory record for Item B is updated
to reflect the use of the 15 items in inventory and
shows no on-hand inventory in week 8
❖ This is referred to as the Gross-to-Net calculation
and is the third basic function of the MRP process
Lot Sizing Rules
❖ Lot-for-Lot (L4L) ordering
❖ Economic Order Quantity (EOQ)
❖ Periodic Order Quantity (POQ)
Lot-Sizing Techniques
❖ Lot-for-lottechnique orders just what is required
for production based on net requirements
► May not always be feasible
► If setup costs are high, lot-for-lot can be expensive
❖ Economic order quantity (EOQ)
► EOQ expects a known constant demand and MRP
systems often deal with unknown and variable demand
Lot-Sizing Techniques
❖ Periodic order quantity (POQ) orders quantity needed
for a predetermined time period
► Interval = EOQ / average demand per period
► Order quantity set to cover the interval
► Order quantity recalculated at the time of the order release
► No extra inventory
Lot-for-Lot (L4L) ordering
LT = 1 0 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
Requirements
Projected
35
Inventory
Net Requirements
Planned Order
Release
Holding costs=$1/unit/week, setup cost=$100;gross requirements average per
week 27; lead time=1 week
Lot-for-Lot (L4L) ordering
LT = 1 0 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
Requirements
Projected
35 35 0 0 0 0 0 0 0 0 0
Inventory
Net Requirements 0 30 40 0 10 40 30 0 30 55
Planned Order
30 40 10 40 30 30 55
Release
Holding costs=$1/unit/week, setup cost=$100;gross requirements average per
week 27; lead time=1 week
Holding cost =0; ordering cost=$700;Total cost =$700
Economic Order Quantity (EOQ)
LT = 1 0 1 2 3 4 5 6 7 8 9 10
Gross
Requirements 35 30 40 0 10 40 30 0 30 55
Projected 35
Inventory
Net Requirements
Planned Order
Receipts
Planned Order
Release
Holding costs=$1/unit/week, setup cost=$100;gross requirements average per
week 27; lead time=1 week
Holding cost =43+3+3+66+26+69+69+39+57=$375; Ordering cost= 7*100= $700;Total cost =$775
Periodic Order Quantity(POQ)
LT = 1 0 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
Requirements
Scheduled
Receipts
Projected 35
Inventory
Net Requirements
Planned Order
Release
Holding costs=$1/unit/week, setup cost=$100;gross requirements average per
week 27; lead time=1 week
Holding cost =40+70+30+55=$195; Ordering cost= 3*100= $300;Total cost =$495
Lot Sizing summary
Setup costs Holding costs Total
Lot for lot $700 $0 $700
Economic order quantity $400 $375 $775
Periodic order quantity $300 $195 $495
Comparison table for different Lot Sizing Methods in
MRP
Lot Sizing Inventory Order Lead Time Example Use
Definition Best for Ordering Cost
Method Holding Cost Frequency Consideration Case
Unstable,
Make-to-order
Orders exactly variable
Lot-for-Lot Low (minimal High (frequent High (every Short lead time is production,
what is needed demand;
(L4L) inventory) orders) period) preferred perishable food,
for each period perishable
pharma
goods
Orders a fixed
Economic High-volume
quantity that Moderate Moderate Works well if
Order manufacturing,
minimizes total Stable demand (balances cost (optimized order Medium lead times are
Quantity retail, consumer
ordering + trade-offs) sizes) stable
(EOQ) goods
holding costs
Batch
Orders enough
Periodic Order Moderately Medium Lower than production,
to cover a fixed Lower than L4L Can be adjusted
Quantity fluctuating (depends on L4L, but not businesses with
number of (fewer orders) per period
(POQ) demand period length) fixed like EOQ fixed review
periods
periods
Exercise
❖ The production planning head for V K Bracket-----
❖ For brackets mentioned in Problem 1,
❖ A particular O-ring is used------
Problem
Consider the following data relevant to an MRP lot-sizing
problem
⦁ Item cost per unit $25
⦁ Set up cost per unit $25
⦁ Inventory carrying cost per year 20.8%
1 2 3 4 5 6 7 8
105 80 130 50 0 200 125 100
⦁ Use the lot sizing rules (lot for lot, EOQ, and Least unit
cost policy) and propose an MRP schedule under each
rule. Assume there is no beginning inventory
