Material Requirement

Planning
Dr. Anurag Tiwari
IIM Rohtak
Hierarchy of Production Decisions
Forecast of Future
Demand

Long range future planning

Aggregate Planning

Master Production Schedule

Schedule of production quantities
by product and time period

Material Requirement planning System

Explode to master schedule to obtain
requirement for components and final product

Detailed Job shop Schedule

TO meet specification of production
quantities from MRP System
Dependent vs Independent Demand
 Dependent Demand

 For any product, all components of that product are dependent demand items.
 Given a quantity for the product, the demand for all parts and components can be
calculated.
 MRP

 The MRP is designed to answer three questions:

 What is needed?
 How much is needed?
 When is it needed?
 What is Material Requirement Planning

 The logic for determining the number of parts, component, and material needed to produce
a product.
 MRP has been installed almost universally in manufacturing firms.
 The reason is that MRP is a logical, easily understandable approach to the problem of
determining the number of parts, components and materials needed to produce each end
item.
 MRP also provides the schedule specifying when each of these items should be ordered or
produced.
 What is Material Requirement Planning

 MRP is most valuable in industries where a number of products are made in batches using
the same productivity equipment.
 MRP is most valuable to companies involved in assembly operations and least valuable to
those in make to order fabrication.
 MRP does not work well in companies that produce a low number of unit annually.
 What is Material Requirement Planning

 Material requirements planning (MRP) is a dependent demand production planning and

inventory control system.
 MRP integrates data from production schedules (MPS) with inventory records, scheduled
receipts and the bill of materials (BOM) to determine purchasing and production schedules
for the components required to build a product.
 Industry Applications and Expected Benefit
of MRP
Industry Type Examples Expected
Benefits
Assemble-to-stock Combine multiple components parts into a finished product, High
which is then stocked in inventory to satisfy customer
demand. Ex watches , tools
Make-to-order • Items are manufactured by machine rather than Medium
assembled from parts.
• These are standard stock items carried in anticipation of
customer demand. Example, piston ring, electric
switches.
Assemble-to-order A final assembly is made from standard options that the High
customer choose, Example: truck, generator
Make-to-order Items are manufactured by machine to customer order. Low
These are generally industry orders, Ex. Bearing, gears
Engineer-to-order Items are fabricated or assembled completely to customer High
specification. Ex. Turbine generator, heavy machine tools
Process Included industries such as foundries, rubber and plastic, Medium
speciality paper, chemicals, paint, drug,
 Master Production Scheduling

 Time-phased plan specifying how many and when the company plans to produce each end
item

Aggregate Plan
(Product Groups)

MPS
(Specific End Items)
 Master Production Schedule (MPS)

 MPS is established in terms of specific products

 The MPS is a statement of what is to be produced, not a forecast of demand

 Must be in accordance with the aggregate production plan

 Before it is executed, MPS must be tested for feasibility (Capacity Requirements Planning)
 Master Production Schedule (MPS)

 To ensure good master scheduling, the master scheduler must:

 Include all demands from product sales, warehouse replenishment , spared and interplant
requirements.
 Never lose sight of the aggregate plan
 Be involved with customer order promising
 Be visible to all levels of management
 Objective trade off manufacturing, marketing and engineering conflicts
 Identify and communicate all products
 Example: The Aggregate plan and the
Aggregate
master production schedule for Mattresses
Production plan for
Mattresses Month 1 2
Mattress Production 900 950

Week
Master Production 1 2 3 4 5 6 7 8
Schedule for mattress
models Model 200 400 200 100
327
Model 100 100 150 100
538

Model 100 200 200

749
 Master Production Schedule (MPS)

 The aggregate operations plan specifies product groups.

 It does not specify exact items.
 The MPS is the time-phased plan specifying how many of each end item the firms plans to
built and when.
 Time Fences
Frozen Slushy Liquid
Capacity
Forecast and available
capacity

Firm Customer Orders

8 15 26
Weeks
 Management defines time fences as period of time having some specified level of opportunity
for the customer to make changes.
 Material Requirement Planning System
Structure
 The material requirement planning of manufacturing activities most closely interacts with
 Master Schedule
 Bill of Materials File
 Inventory Record File
 Output Reports
 Material Requirement Planning System
Structure
Forecast of
Demand from
customers

Aggregate
Firm orders
from Production Plan
customers

Engineering Inventory
Master
Design Transaction
Change
Production
Schedule (MPS)

Material
Bill of materials Planning(MRP Inventory
file Computer record file
Program )

Primary Reports Secondary Reports

Production Activity Planned order releases for Exceptions reports
Report inventory and production planning reports
control Reports for performance
control
 Demands For Products

 Product demand for end items comes from two main sources
 Customers who have placed specific orders (Such as those generated by sales personnel or
independent transactions)
 These orders usually carry promised delivery dates
 The second source is the aggregate production plan
 The aggregate plan reflects the firms strategy for meeting demand in future
 Bill of Material

 List of components, ingredients, and materials needed to make product

 Provides product structure
 Items above given level are called parents
 Items below given level are called children
 Bill of Material

 The bill of materials (BOM) file contains the complete product description, listing the
materials parts and component; the quality of each item and also the sequence in which
product is created.
 The bill of Management file is often called the product structure file or product tree
because it shows how a product is put together.
 It contains the information to identify each item and the quantity used per unit of the item
which it is a part.
 Bill of Material

B(2) C(3)

Single-Level Parts List

Indented part List A
D(1) E(4) F(2) G(5) H(4)
A B(2)
C(3)
B(2) B
D(1) D(1)
E(4) E(4)
C(3) C
F(2) F(2)
G(5) G(5)
H(4) H(4)
 Bill of Material

 A modular bill of material is the term for a buildable item that can be produced and
stocked as a subassembly
 Many end items that are large and expensive are better schedule subassembly modules
when the same subassemblies appears in different end items.
 A super bill of material includes items with fractional options.
Assembly Diagram and
Product Structure Tree
BOM Example (Determine requirements for all components to
satisfy demand for 50 Awesome Speaker Kits)

Level Product structure for “Awesome” (A)

0 A

Std. 12” Speaker kit w/

1 B(2) Std. 12” Speaker kit C(3) amp-booster

2 E(2) E(2) F(2) Std. 12” Speaker

booster assembly

Packing box and

3 D(2) installation kit of wire, G(1) D(2)
bolts, and screws

Amp-booster

12” Speaker 12” Speaker

BOM Example (Determine requirements for all components to
satisfy demand for 50 Awesome Speaker Kits)

Level Product structure for “Awesome” (A)

0 A

Std. 12” Speaker kit w/

1 B(2) Std. 12” Speaker kit C(3) amp-booster
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 E(2) = 800 F(2) Std. 12” Speaker
+ 2Ex(2)number of Fs = (2)(100) + (2)(300) booster assembly
Part E: 2 x number of Bs
+ 2 x numberPacking
of Cs = box
(2)(100)
and + (2)(150) = 500
3 D(2)Part F: 2 x numberinstallation
of Cs =kit of(2)(150)
wire, = G(1)
300 D(2)
bolts, and screws
Part G: 1 x number of Fs = (1)(300) = 300

Amp-booster

12” Speaker 12” Speaker

 Inventory Record
 The inventory records file can be quite lengthy.
 The MRP program accesses the status segment of the record according to specific time
periods.
Item Master Data Parts No. Description Lead Time Std. Cost Safety Stock
 These records are accessed
Segment during the program run.
Order Quantity Setup cycle Last year’s usage class

Scrap allowance Cutting data Pointers ETC

Inventory Status Allocated Control Data Period Totals

Segment 1 2 3 4 5 6 7 8
Gross Requirement

Schedule receipts

Projected available
balance
Planned order release

Order details

Subsidiary data Pending actions

Counters

Keeping tracck
 Example
X

B(2) C

D(3) E E(2) F(2)

Components On Hand
B 4
E(4) C 10
D 8
E 60
Use the information presented in figure to do following:
1. Determine the quantities of B,C,D,E and F needed to assemble one X
2. Determine the quantities of these components that will be required to assemble 10Xs taking into account
that quantities on hand (i,.e in inventory) of various components;
 MRP Computer Program
 MRP programs operates using information from the inventory record, the MPS, and BOM.
 The process of calculating the exact requirements for each item managed by the system is
often referred to as the explosion process.
 General Description of the MRP explosion
Process:
1. The requirement for level 0 items, typically referred to as end items, are retrieved from the master
schedule.
These requirement are referred to as gross requirements by the MRP program. Typically, the gross
requirements are scheduled in weekly time buckets.
2. The program uses the current on-hand balance together with the schedule of orders that will be
received in the future to calculate the net requirements.
3.Using the requirement, the program calculates when order should be received to meet these net
requirements.
4. Since there is typically a lead time associated with each order, the next step is to find a schedule
for when orders are actually released.
Offsetting the planned-order receipts by the required lead times does this, This schedule is referred to
as the planned-order release.
 General Description of the MRP explosion
Process:
5. After those four steps have been completed for al the level zero items, the program moves to
level 1 items.
6.The gross requirement for each level 1 items are calculated from the planned-order release
schedule for the parents of each level 1 item
Any additional independent demand also needs to be included in the gross requirement.
7.After the gross requirement have been determined, net requirements, planned-order receipts,
and planned-order release are calculated as described in step 2 and 4.
8. This process is then repeated for each level in the bill-of material.
Example MRP
 An Example Using MRP

 Amper Inc. Produces a line of electric meters installed in residential buildings by electric
utility companies to measure power consumption.
 Meter Used on a single-family homes are two basic types for different voltage and
amperage ranges.
 In addition to complete meters some subassemblies are sold separately for repair or for
change overs to a different voltage or power load.
 The problem for the MRP system is to determine a production schedule to identify each
item,
 The period when it is needed and the appropriate quantities.
 The Schedule is then checked for feasibility and the schedule is modified.
 Forecast Demand

 Future Requirements for meters A and B and Subassembly D stemming from specific
customer orders and from forecast.

Month Meter A Meter B Subassembly D

Known Forecast Known Forecast Known Forecast
3 1000 250 410 60 200 70
4 600 250 300 60 180 70
5 300 250 500 60 250 70
 Developing Master Production Schedule

Week
9 10 11 12 13 14 15 16 17
Meter A 1250 850 550
Meter B 470 360 560
Subassembly 270 250 320
D
 Bill of Material Structure

A B

C(1)
C(1)
D(1)
D(2)
D(2)

Meter A Meter B
A B
D(1) C(1)
C(1) D(2)
D(2)
 Inventory Calculation

 Number of Units on hand and lead time data that would appear on the inventory record file

Item On Hand Lead Time Safety Stock On Order

Inventory (Weeks)
A 50 2 0
B 60 2 0 10 (week5)
C 40 1 5
D 200 1 20 100 (week 4)
Performing Requirement Planning Schedule for
Meters A and B and Subassembly C and D
 Lot Sizing in MRP System

 Lot sizes are the part quantities issued in the planned order receipt and planned order
release section of an MRP schedule.
 For part produce in-house, lot sizes are the production quantities of batch sizes.
 In an attempt to save setup cost, the inventory generated with the larger lot sizes needs to
be stored.
 The lot-sizing techniques presented are lot-for-lot(L4L), economic order quantity(EOQ),
least total cost(LTC), least unit cost(LUC).
 Example

 Consider the following MRP lot-sizing problem; the net requirements are shown for eight
scheduling weeks
Cost per item $10.00
Order or setup cost $47.00
Inventory Carrying Cost/Week 0.5%
Weekly Net Requirement
1 2 3 4 5 6 7 8
50 60 70 60 95 75 60 55
 Lot for Lot

(week) Net Production Ending Holding Cost Setup Cost Total Cost
Requirement Quantity Inventory

1 50 50 0 0 $47.00 $47.00
2 60 60 0 0 47.00 94
3 70 70 0 0 47.00 141
4 60 60 0 0 47.00 188
5 95 95 0 0 47.00 235
6 75 75 0 0 47.00 282
7 60 60 0 0 47.00 329
8 55 55 0 0 47.00 376
 Economic Order Quantity

  Annual demand based on 8 weeks =D=(525/8)*52=3,412

 Annual holding cost=H=0.5%*$10*52(Weeks)=$2.60 Per unit
 Setup cost=S=$47
 EOQ= 351 unit
 Economic Order Quantity

(week) Net Production Ending Holding Cost Setup Cost Total Cost
Requirement Quantity Inventory

1 50 351 301 $15.05 $47.00 $62.05

2 60 0 241 12.05 0 17.10
3 70 0 171 8.55 0 82.65
4 60 0 111 5.55 0 88.20
5 95 0 16 00.80 0 89.00
6 75 351 292 14.60 47.00 150.60
7 60 0 232 11.60 0 162.20
8 55 0 177 8.85 0 171.05