BA 105: Operations

Management

BA 105: Operations
Management

Material Requirements
Planning

Erik Paolo Capistrano

1 Material Requirements Planning

Material Requirements BA 105: Operations
Management

Material Requirements Planning (MRP)

• A logical approach for determining the number of parts,
components, and materials needed to produce a
product.
• It provides time scheduling information specifying
when each of the materials, parts, and components
should be ordered or produced.

Erik Paolo Capistrano

2 Material Requirements Planning

Material Requirements BA 105: Operations
Management

MRP Applications
• Assemble-to-stock
 Combines multiple component parts into a finished
product to stock such as watches, tools, and
appliances.

• Fabricate-to-stock
 Items are manufactured by machine rather than
assembled from parts to stock such as piston
rings, and electrical switches.

Erik Paolo Capistrano

3 Material Requirements Planning

Material Requirements BA 105: Operations
Management

MRP Applications
• Assemble-to-order
 A final assembly is made from standard options
that the customer chooses such as trucks,
generators, and motors.

• Fabricate-to-order
 Items are manufactured by machine to customer
order such as bearings, gears, and fasteners.

Erik Paolo Capistrano

4 Material Requirements Planning

Material Requirements BA 105: Operations
Management

MRP Applications
• Manufacture-to-order
 Items are fabricated or assembled completely to
customer specification such as turbine generators,
and heavy machine tools.

• Process
 Includes industries such as foundries, rubber and
plastics, specialty papers, chemicals, paint, drug,
and food processors.

Erik Paolo Capistrano

5 Material Requirements Planning

MRP Logic and Product Tree BA 105: Operations
Management

Example:
Given the product structure tree for “A” and the lead time and demand
information below, provide a materials requirements plan that defines
the number of units of each component and when they will be needed.

Lead Times
Product Structure Tree for Assembly A A 1 day
B 2 days
A C 1 day
D 3 days
E 4 days
F 1 day
B(4) C(2)
Demand
Day 10 50 A
D(2) E(1) D(3) F(2) Day 8
Day 6
20 B (Spares)
15 D (Spares)
Erik Paolo Capistrano

6 Material Requirements Planning

MRP Logic and Product Tree BA 105: Operations
Management

Example:
First, the number of units of “A” are scheduled backwards to
allow for their lead time. So, in the materials requirement plan
below, we have to place an order for 50 units of “A” in the 9th
week to receive them in the 10th week.

Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50

LT = 1 day
Erik Paolo Capistrano

7 Material Requirements Planning

MRP Logic and Product Tree BA 105: Operations
Management

Example:
Next, we need to start scheduling the components that make up “A”. In
the case of component “B” we need 4 B’s for each A. Since we need 50
A’s, that means 200 B’s. And again, we back the schedule up for the
necessary 2 days of lead time.
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
B Required 20 200
Order Placement 20 200

LT = 2
Spares

Erik Paolo Capistrano

8 Material Requirements Planning

MRP Logic and Product Tree BA 105: Operations
Management

Example:
Finally, repeating the process for all components, we have the
final materials requirements plan:
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200

Part D: Day 6
40 + 15 spares
Erik Paolo Capistrano

9 Material Requirements Planning

Master Production Schedule BA 105: Operations
Management

Master Production Schedule (MPS)

• Time-phased plan specifying how many and when the
firm plans to build each end item.
• It must include all demands form product sales,
warehouse replenishment, spares, and interplant
requirements.
• It must never lose sight of the aggregate plan.
• It must be involved with customer order promising.
• It must be visible to all levels of management.
• It must objectively trade off manufacturing, marketing,
and engineering conflicts.
Erik Paolo Capistrano

10 Material Requirements Planning

Master Production Schedule BA 105: Operations
Management

MPS Time Fences

• Frozen
 No schedule changes allowed within this window.

• Moderately Firm
 Specific changes allowed within product groups as
long as parts are available.

• Flexible
 Significant variation allowed as long as overall
capacity requirements remain at the same levels.

Erik Paolo Capistrano

11 Material Requirements Planning

Master Production Schedule BA 105: Operations
Management

MPS Time Fences

Moderately
Frozen Firm Flexible

Capacity
Forecast and available
capacity
Firm Customer Orders

8 15 26

Weeks

Erik Paolo Capistrano

12 Material Requirements Planning

MRP Systems BA 105: Operations
Management

MRP Systems
• It is based on the master production schedule.
• It creates schedules identifying the specific parts and
materials required to produce end items.
• It determines exact unit numbers needed.
• It determines the dates when orders for those
materials should be released, based on lead times.

Erik Paolo Capistrano

13 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Aggregate Forecasts
Firm orders
product of demand
from known
plan from random
customers
customers

Master
Engineering
production Inventory
design
schedule transactions
changes
(MPS)

Bill of Material Inventory

material planning record
file (MRP) file

Reports

Erik Paolo Capistrano

14 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Bill of Materials (BOM) File

• Materials
• Parts
• Components
• Production sequence
• Modular BOM
 Subassemblies
• Planning BOM
 Fractional options

Erik Paolo Capistrano

15 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Inventory File
• Inventory Records File
 Each inventory item carried as a separate file.
 The status are described according to “time
buckets”.
 It can identify each parent item that created
demand by “pegging” the records.

• Inventory Transactions File

 Records changes due to stock receipts and
disbursements, scrap losses, wrong parts, and
cancelled orders.
Erik Paolo Capistrano

16 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Primary Report Generations

• Planned orders to be released at a future time.
• Order release notices to execute the planned orders.
• Changes in due dates of open orders due to
rescheduling.
• Cancellations or suspensions of open orders due to
cancellation or suspension of orders on the master
production schedule.
• Inventory status data.
• Inventory Records File

Erik Paolo Capistrano

17 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Secondary Report Generations

• Planning reports such as forecasting inventory
requirements over a period of time.
• Performance reports used to determine agreement
between actual and programmed usage and costs.
• Exception reports used to point out serious
discrepancies, such as late or overdue orders.

Erik Paolo Capistrano

18 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Example:
Item On-Hand Lead Time (Weeks)
X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

Requirements include 95 units (80 firm orders and 15 forecast) of X in
week 10 plus the following spares:
Spares 1 2 3 4 5 6 7 8 9 10
A 12
B 7
C 10
D 15
Erik Paolo Capistrano

19 Material Requirements Planning

MRP Systems BA 105: Operations
Management

Example:

Erik Paolo Capistrano

20 Material Requirements Planning

Manufacturing Resource BA 105: Operations
Management

Manufacturing Resource Planning (MRP II)

• An expansion of MRP to include other functions and
portions of the production system such as purchasing,
marketing, finance, and engineering.
• It simulates the manufacturing process to map out the
fundamental manufacturing equation:
• What are we going to make?
• What does it take to make it?
• What do we have?
• What do we have to get?

Erik Paolo Capistrano

21 Material Requirements Planning

MRP and JIT BA 105: Operations
Management

JIT
Finished
Goods
Material Requirements Planning
Final
Assembly

Subassembly
Master Production
Finish Schedule
manufacturing

Fabrication

Raw
Materials
Erik Paolo Capistrano

22 Material Requirements Planning

Lot Sizing in MRP Systems BA 105: Operations
Management

Lot Sizing in MRP Systems

• The part quantities issued in the planned order receipt
and planned order releases of an MRP schedule.
• For parts produced in-house, these are the production
quantities of batch sizes.
• For parts purchased, these are the quantities ordered
from the supplier.
• The challenge is to balance the setup or order costs
and the holding costs associated with meeting the
MRP requirements.

Erik Paolo Capistrano

23 Material Requirements Planning

Lot Sizing in MRP Systems BA 105: Operations
Management

Lot for Lot (L4L)

• It sets planned orders to exactly match the net MRP
requirements.
• It produces exactly what is needed each period with
none carried over into future periods.
• It minimizes carrying costs.
• It requires high setup costs each period.

Erik Paolo Capistrano

24 Material Requirements Planning

Lot Sizing in MRP Systems BA 105: Operations
Management

Economic Order Quantity (EOQ)

• Demand for the product is constant and uniform
throughout the period.
• Lead time (time from ordering to receipt) is constant.
• Price per unit of product is constant.
• Inventory holding cost is based on average inventory.
• Ordering or setup costs are constant.
• All demands for the product will be satisfied. (No back
orders are allowed.)

Erik Paolo Capistrano

25 Material Requirements Planning

Lot Sizing in MRP Systems BA 105: Operations
Management

Least Total Cost (LTC)

• A dynamic lot-sizing technique that calculates the order
quantity by comparing the carrying cost and the setup
or ordering costs for various lot sizes.
• It selects the lot in which these are most nearly equal.
• This is influenced by the length of the planning horizon.

Erik Paolo Capistrano

26 Material Requirements Planning

Lot Sizing in MRP Systems BA 105: Operations
Management

Least Unit Cost

• A dynamic lot-sizing technique that adds ordering and
inventory carrying costs for each trial lot size and then
divides it by the number of units in each lot size.
• It selects the lot size with the lowest unit cost.
• This is influenced by the length of the planning horizon.

Erik Paolo Capistrano

27 Material Requirements Planning