Material Requirement Planning

2
MATERIAL REQUIREMENT
PLANNING
MGT2405, University of Toronto, Denny Hong-Mo Yeh

Material requirement planning is not only a technique for planning material

requirements. It is also a logic that relates all the activities in a company to customer
demands. People can manage all the resources in a company by using MRP logic together
with data processing in other areas. This entire system is called a Manufacturing
Resources Planning System, or MRP II. With the introduction of technological
enhancements such as open systems platforms and client/server architecture, MRP II
systems are now evolving into Enterprise Resource Planning Systems (ERP). An ERP
system plans not only the allocation of manufacturing resources but also other resources,
and has applications in service as well as manufacturing industries. In this book, we
concentrate our discussion on manufacturing.
Nature of Demands
All systems are implemented to satisfy customers demand. There are different sources of
demand for a product and its component items. Some item requirements are determined by
the needs of other items while others are specified by customers. The former requirements
also come from customers, but indirectly. Item requirements can be classified as
dependent and independent demands.

Independent demand
Demand for an item that is unrelated to the demand for other items. Demand for
finished goods, parts required for destructive testing, and service part requirements are
examples of independent demand.

Dependent demand
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Material Requirement Planning

Demand that is directly related to or derived from the bill of material structure for
other items or end products. Such demands are calculated and need not be forecasted.
A given inventory item may have both dependent and independent demand at any given
time. For example, a part may simultaneously be used as a component of an assembly and
also sold as a service part. Production to meet dependent demand should be scheduled so as
to explicitly recognize its linkage to production intended to meet independent demand.
MRP Input Data
MRP is to translate the requirement of end products stated in MPS into the requirement of
components and materials. MPS is the most direct input to MRP. Other input data include
inventory status, bill of material (BOM), fundamental data in item master file, and shop
calendar.

MPS
MPS is the schedule for end items. It states the quantity and timing of production of
specific end items. Master production scheduling is a procedure to determine the
production schedules and the available-to-promise (ATP) of the end products. Based
on MPS, MRP calculates the replenishment plans from the items in the level below the
end products down to the raw materials

BOM
BOM describes the structure of the products. It states, from level to level, the
components needed to make the parent items. By using BOM, the requirements of end
products are expanded to include the requirements of the components, and hence the
requirements of all the lower level materials.

Inventory Status
In expanding the lower level requirements, what we obtain are gross requirements.
Gross requirement is not the real requirement. Net requirement is calculated by
subtracting the inventory from the gross requirement. Since MRP is time-phased, both
on-hand and on-order inventories are considered. On-hand inventory is the present
inventory; on-order inventory is the future inventory, and has to be represented by both
quantity and receiving date.

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Material Requirement Planning

Fundamental data in item master file

The attributes of all items including raw materials, works-in-process, semi-finished
goods, or finished goods, are expressed in the item master file. Part number, lead-time,
safety stock, lot-sizing rule, low level code, etc. are required by the MRP processor.
Low level code is used to determine the sequence of MRP calculation. Safety stock
and lot-sizing rule are used to decide the quantity of the material replenishments.
Lead-time is used to decide the time to replenish the required materials.

Shop Calendar
MRP systems are time-phased. Time bucket is an interval used to break time into
discrete chunks. The length of a time bucket is defined according to the characteristics
of a business. Commonly used time bucket includes week and day, i.e.,
numbered-week calendar (00-99) and numbered-day calendar (M-day calendar,
000-999). Planning horizon is the amount of time the master schedule and MRP extend
into the future. The planning horizon should cover at least the cumulative lead-time to
produce a product.

Integrity of MRP Input Data

Data integrity means completeness, timeliness and accuracy. Input data should be provided
by related people or machine in time and accurately. If required data is not entered into the
system properly, MRP will produce nothing but garbage. MRP is supposed to provide users
with credible data but errors destroy the credibility and turn the MRP into a More
Ridiculous Plan.
Discipline, attitude and training are the keys to data integrity. Education of employees is
the most important factor. Information or data processing auditing must occur regularly to
keep the data valid. Management must accept the responsibility for the training, discipline
and motivation of everyone who handles data. All the employees handling data must
assume responsibility for quality of data handled.
The objective of data integrity is to find and eliminate the causes of errors. Companies
using MRP/ERP systems should incorporate auditing, self-checking and self-correcting
features into the systems.
Automatic data integrity checks of input data include existence test (e.g. part number,
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Material Requirement Planning

transaction code), reasonableness test (e.g. abnormal quantity or unit-of-measure),

diagnostic test (e.g. prior transactions required), internal detection (e.g. negative inventory
balances), and purging residences of undetected errors (e.g. closing out old shop or
purchase orders)
MRP Procedure
MPS procedure consolidates the independent demands of forecasts and customer orders to
determine the requirements of the end products in each time bucket in the planning horizon.
After netting the on-hand and on-order inventory, and offsetting the lead-time, the
production schedule of the end products, MPS, is determined. In MPS procedure, the
available-to-promise (ATP) is also determined. MPS is then fed into the MRP procedure to
determine the requirements of the lower level components and raw materials.
The gross requirements of components are determined by calculating the planned order
releases (POR) of the parents via single level BOM explosion. The net requirements are
calculated by subtracting the on-hand inventory and scheduled receipts (on-order) in each
time bucket. After the consideration of lot-size, the net requirements are transformed into
the planned order receipts. Planned order receipts appear in every period. Lead-time
offsetting shifts the planned order receipts backward and derives the POR which are the
MRP result of current item. The MRP procedure continues to explode the POR to obtain
the gross requirements of its components. The MRP repeat the procedure until the POR of
all the items are determined. The flow chart of the MRP procedure is described in Figure 3.
The net requirement in a period is determined in MRP procedure by the following formula,
Net requirement = Gross requirement Available inventory
The available inventory for the first period is
Available inventory = On hand inventory + Scheduled receipts of the first period
Allocations Backorders Safety stock.
And, for the other periods
Available inventory = Projected available balance at the end of last period
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Material Requirement Planning

+ Scheduled receipts of the current period

If the calculated net requirement is positive, then it is the net requirement of that item in
that period. In this case, the projected on-hand balance at the end of that period is less than
the safety stock, and the projected available balance is the projected on-hand balance plus
the planned order receipt in that period. If the calculated net requirement is negative, then it
is the projected available balance at the end of that period.

MPS: Part No./ Quantity/ Date

If there are items not processed yet.

Single level BOM explosion, calculate gross

requirement of the components with the planned order
releases in the corresponding periods.

Calculate: Net requirement = Gross requirement

Available inventory, for each period.

Determine the planned order receipts according to lot

sizing rules.

Offset lead-time to determine the planned order

releases.

Obtain MRP report for the current item.

Figure 3: MRP Procedure

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Material Requirement Planning

Let us examine a simple MRP case first.

MRP Case 1: Sunglasses Sets
Suppose a goggle sunglasses set is illustrated as in Figure 4.

Figure 4: Sunglasses Set

In the end product, two temples are assembled to a single-piece lens to make a pair of
sunglasses. Two spare lenses are sold along with the sunglasses. They are put in a plastic
bag to form a sunglasses set. We ignore the plastic bag in the end product. The item master
file is shown in Table 1.
Table 1: Item Master File of the Sunglasses Set

P_No

LLC

LT

Sunglasses
set
sunglasses

Onhand
5

40

lens

temple

50

Name

In Figure 5, the quantities of the components required by per parent are expressed in the
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Material Requirement Planning

parentheses. For example, a sunglasses set is made of a pair of sunglasses and two lenses,
and a pair of sunglasses is made of a lens and two temples. The data structure in a BOM file
is shown in Table 2.

B(qp=1)

C(qp=2)

C(qp=1) D(qp=2)
Figure 5: Product Structure for Sunglasses Set

Table 2: BOM File

Parent

Component

Qty-per

The requirements of the sunglasses set are shown in Table 3. The scheduled receipts for
lenses and temples are shown in Table 4.

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Material Requirement Planning

Table 3: Independent Demand for Sunglasses Sets

Period

40

50

50

Table 4: Schedule Receipts for Lenses and Temples

Period

100

50

The MPS/MRP procedure starts from the items with zero low level code, i.e., the end
products. The calculations of MRP from the top level end product to the lowest level
materials are shown in Table 5 to Table 8, and the summary of the MRP results is shown in
Table 9.
Table 5: MPS Calculation for A

Period

GR

40

50

50

35

50

50

SR
NR

POR

-5
35

50

50

Table 6: MRP Calculation for B

Period

GR

35

50

50

SR
NR 40
POR

-5

-5

45

50

45

50

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Material Requirement Planning

Table 7: MRP Calculation for C

Period

GR

70

SR

100

NR

POR

-30

-30

15

100

45
15

100

50

100

100

50

100

50

100

Table 8: MRP Calculation for D

Period

GR

90

SR

100

50

NR 50

-50

-100

POR

-10

-10

-10

90

90
Table 9: Summarized MRP Report

P_No source
A

make

make

purchase

purchase

35

50

50

45
15

50

100

50

100

90

MRP Case 2: International Airport Services

When an aircraft arrives at an international airport, a towing tractor marshals the aircraft to
an indicated gate. Ramp services and cabin services are proceeded during the period when
the aircraft stays. Ramp services include the toilet cleaning, gas refueling, etc. Cabin
services include catering load, garbage dumping, etc. Figure 6 is a simplified aircraft
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Material Requirement Planning

services flow chart.

Since the times for the aircraft arrival and departure are scheduled, the marshaling services
must be performed at predetermined times. The other services can be scheduled between
the earliest start time (EST) and the latest start time (LST) as shown in Figure 7.

Arrival
Marshaling
Toilet cleaning

Catering load

Refueling

Garbage dmp

Marshaling
Departure
Figure 6: Simplified Aircraft Services

10 11 12

B(Toilet cleaning)
C(refueling)
D(Catering load)
E(Garbage dumping)
LST

EST

Figure 7: Scheduling of Airport Services

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Material Requirement Planning

As item master files in the manufacturing, we now create a service master file shown in
Table 10.
Table 10: Service Master File of Airport Services
Service Number
Service Name
Service Time
Phantom
X
Arrival
0
y
Y
Departure
0
y
A
Marshaling
1
n
B
Toilet cleaning
2
n
C
Refueling
1
n
D
Catering load
2
n
E
Garbage dumping
1
n
The structure of the services is shown in Figure 8. Since the service-time of a service means
its duration, we have to count the loads of the resources in all time buckets from the start to
the end of services. For example, the toilet cleaning service lasts two time units, its
service-time is set as 2 in the service master file, and two records are defined in the bill of
service file with offset-time (OT) 1 and 2. The quantity-per (QP) defined in bill of service
file is the load of the service. The quantity-per of the toilet cleaning service is 2, which
means two lavatory trucks are needed during the service. The offset-time and the
quantity-per determine that two lavatory trucks are required during a period of two
consecutive time buckets. Note that the service times in the service master file are used to
create the offset-times in the BOM file, and the lead-times used by MRP are all zero.

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Material Requirement Planning

A
(QP=1)
(OT=0)

A
(QP=1)
(OT=1)

B
B
C
D
D
E
(QP=2) (QP=2) (QP=1) (QP=3) (QP=3) (QP=1)
(OT=1) (OT=2) (OT=1) (OT=1) (OT=2) (OT=1)

Figure 8: Service Structure for Airport Services

The data structure of the bill of service file is shown in Table 11.

Parent
X
Y
A
A
A
A
A
A

Table 11: Bill of Service File

Component
Qty-per
A
1
A
1
B
2
B
2
C
1
D
3
D
3
E
1

Offset-time
0
1
1
2
1
1
2
1

Suppose a certain aircraft is scheduled to arrive at time 1 and depart at time 12, the
schedule is stated similar to MPS in the manufacturing cases, now we name it the master
service schedule (MSS), as shown in Table 12.
Table 12: MSS for aircraft arrival and departure
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Material Requirement Planning

Time

10

11

12

Services have neither inventories nor scheduled receipts as in the cases of manufacturing.
Services must be provided at the moment when customers use it. In the MRP calculation
procedure, gross requirements are the services that customers need. Since there is no
on-hand or on-order inventory, the net requirement equals the gross requirement. Only two
rows remain in the MRP reports. MRP is now renamed as service requirement planning,
and the rows are named required and scheduled. The MRP procedure is described in
Table 13.
In table 13, the scheduled service of A in time 1 required by X should not be exploded
further. This can be done with a field of X-A record in the BOM file indicating no further
explosion. The above example is for a single aircraft. The system will schedule all the
flights in MSS, then use MRP procedure to calculate all the services required. The service
requirements are scheduled by MRP at the latest start time. The system also calculates the
EST schedule. Schedules are then adjusted manually or automatically between EST and
LST to balance the load and capacity.

P_No time
X
Req
Schl
Y
Req
Schl
A
Req
Schl
B
Req
Schl
C
Req
Schl
D
Req
Schl
E
Req
Schl

Table 13: Service Requirement Planning for Airport Services

1
2
3
4
5
6
7
8
9
10
1
1

11

12

1
1
1

1
1

1
4
2

2
1
1
6

3
1
1

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Material Requirement Planning

This example explains how ERP is used in a service business. Time buckets are sliced as
small as the minimal unit a service requires. All service times are multiple of the time
bucket length. Lead-times are all set to 0 because the start time of the parent operation is
exactly the end time of the child operation, or differs by 1, which can be controlled by
offset-time. The service time determines how many time buckets are needed by an
operation. An operation repeats, as a child item, the required time buckets times, say n,
with offset-time from 1 to n in each BOM record. The service requirement planning uses
the same functions of item master, BOM, MPS, and MRP in the ERP system. The idea can
also be applied to manufacturing operations.

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