Chapter 13

Material Requirements
Planning (MRP)

Business 3401
 Introduction
• MRP (Material Requirements Planning)
o determines the plans for purchasing and
production of dependent-demand components.

• ERP (Enterprise Resource Planning)

o Uses extensive software to integrate record
keeping and information sharing throughout an
organization

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Independent and Dependent
Independent Demand
Demand
finished goods A Dependent Demand

raw materials,
B(4) C(2) parts,
subassemblies
D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Business 3401 Dependent demand is certain. Requirements
Chapter 13 – Material
Planning (MRP)
 Dependent Demand
Demand for items that are subassemblies or component parts
to be used in production of finished goods.
o Once the independent demand is known, the dependent
demand can be determined.

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Material Requirements Planning
(MRP)
• Computer-based information system that handle
ordering and scheduling of dependent demand
items.

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Description of MRP
 MRP converts the production plan for final
products into requirements for component items
and raw materials:
 What is needed
 When is needed
 How much is needed
When should procurement, fabrication assembly
start for completing end items on time

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Overview of MRP
MRP Inputs MRP Processing MRP Outputs

Changes

Master Immediate
Production order releases
Schedule Planned-order
releases
Primary
reports
Demand history
reports
Bill of MRP computer Secondary
Performance-
materials programs reports control
reports

Inventory
records Inventory
transaction
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 MRP Inputs
1. Master Production Schedule
• States which items are to be produced, when these are
needed, and in what quantities
2. Bills of Material (BOM)
• BOM - A listing of all raw materials, subassemblies and parts
needed to produce one unit of a product
• Assembly diagram and product structure tree – Visual and
nominal depiction of the requirements in a bill of material,
where components are shown by levels
3. Inventory levels, Lead times, and Open Orders

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Input: Master Production
Schedule
 Master Production Schedule: Which end items are to be
produced, when these are needed, and in what
quantities.
 The planning horizon is divided into time periods called time-
buckets (typically weeks)
WEEK NUMBER
Item: A 1 2 3 4
Quantity 100

100 units of A needed at beginning of week 3

 The planning horizon should be long enough to cover the

cumulative lead time. (total lead time required from ordering of
parts or raw materials to completion of final assembly)
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
Input: Bill-of-Materials (BOM)
 Bill-of-Materials (BOM) File: List of all raw materials,
parts, subassemblies needed to produce the product.
 Illustrated using a product-structure tree:

Level
Chair (C)
0
1 Leg Back
Assembly (LA) Seat (S) Assembly (BA)

2 Legs (2) Cross Side Cross Back

(L) bar (CB) Rails (2) bar Supports (3)
(SR) (CB) (BS)
3
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Input: Bill-of-Materials (BOM)
 End Item: final product sold to the
customer; it is a parent, not a component,
e.g., C.
 Intermediate Item: has at least one parent
and one component, e.g., LA, BA.
 Purchased Item: No component but has
parent, e.g., L, CB, S, SR, BS.

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
Example: Product Structure Tree
Level
Determine the quantities of
0 A each item needed for 50 As.

1 B(2) C(3)

2 E(2) E(2) F(2)

3 D(2) G(1) D(2)

B: 2 x A = (2)(50) = 100
C: 3 x A = (3)(50) = 150
D: 2 x B + 2 x F = (2)(100) + (2)(300) = 800
E: 2 x B + 2 x C = (2)(100) + (2)(150) = 500
F: 2 x C = (2)(150) = 300
G: 1 x F = (1)(300) = 300
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Input: Inventory Records
 Inventory Records File: Info on the inventory
status of each item by time period.
 Requirements
 Scheduled receipts
 Projected on-hand inventory levels
 Lead time information
 Other details (supplier, lot size etc)
 Transactions are recorded and updates done
every time period
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Question 3
The following table lists the components needed to assemble
an end item, the manufacturing or purchase lead times (in
weeks) for typical lot sizes, amount on hand, and the direct
components of each item and, in brackets, the number of each
component for each parent.
Item Lead Time Amount on Hand Direct Components
End Item 1 -- L(2), C(1), K(3)
L 2 10 B(2), J(3)
C 3 15 G(2), B(2)
K 3 20 H(4), B(2)
B 2 30
J 3 30
G 3 5
H 2 --

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Question 3, a)
Draw the product structure tree for the End item

End Item

L(2) C(1) K(3)

B(2) J(3) G(2) B(2) H(4) B(2)

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Question 3, b)
If 40 units of the end item are to be assembled, how many
additional units of B are needed?

B on hand: 30
Required for 40 items: Less on hand: B’s Needed:
L: 2 x 40 = 80 10 70 x 2 = 140
C: 1 x 40 = 40 15 25 x 2 = 50
K: 3 x 40 = 120 20 100 x 2 = 200

Total B’s required for 40 End items 390

Less on hand 30
Net Required 360

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Question 3 c)
An order of 40 units of the end item is scheduled to be
shipped at the start of week 8. What is the latest week that
the components of the order can be started and the order still
be ready to ship on time?
End Item-1

L-2 C-3 K-3

B-2 J-3 G-3 B-2 H-2 B-2

Total Lead times:
5 6 7 6 6 6

7 weeks in the longest lead time so, 8 – 7 = 1. Must begin by start of week 1

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 MRP Processing & Assembly Time Chart
 MRP processing takes end item requirements specified by
MPS and explodes them into time-phased requirements for
fabrication or assembly of subassemblies

Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C
Procurement of
part H Subassembly B

Procurement of Fabrication of part G

raw material I
1 2 3 4 5 6 7 8 9 10 11
Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 MRP Processing

Gross Scheduled Projected on

requirements receipts hand

Planned- Planned-
Net
order order
requirements
receipts releases

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 Inventory Requirements
Net requirements =
Gross Requirements
– Available Inventory

Available Inventory =
Projected on hand
– Safety stock
– Inventory allocated to other items

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 MRP Processing
• Gross requirements
o Total expected demand during a time period
• Scheduled receipts
o Open orders scheduled to arrive
• Projected on hand
o Expected inventory on hand at the beginning of each time
period
• Net requirements
o The actual amount needed in each time period

Chapter 13 – Material
Business 3401
Requirements Planning (MRP)
 MRP Processing
• Planned-order receipts
o Quantity planned to be received at the beginning of a
time period

• Planned-order releases
o Quantity planned to be ordered in the beginning of a
time period
o = planned-order receipts offset by lead time

Chapter 13 – Material
Business 3401
Requirements Planning (MRP) 22
 Example (Chair Assembly)
 Suppose that a 100-unit delivery of chairs is
scheduled at the start of week 6. Determine the
size and the timing of back-support parts to meet
this delivery.
LEADTIME
Final Chair Assembly 1 week
Back Assembly 1 week
Back Support Procur. 2 weeks

 Each assembly requires 3 back supports.

 The firm has 20 back support units available and
60 more is scheduled to arrive at the beginning
of Week 4.
Chapter 13 – Material
Requirements Planning (MRP)
 Example (Chair Assembly)
Week Number 1 2 3 4 5 6
Part: Chair Gross Requirements 100
LT: 1 Scheduled Receipts
Projected On-hand
Net Requirements 100
Planned-order Receipts 100
Planned Order Releases 100

Week Number 1 2 3 4 5 6
Part: Back Gross Requirements 100
Assembly Scheduled Receipts
LT: 1 Projected On-hand
Net Requirements 100
Planned-order Receipts 100
Planned Order Releases 100

Chapter 13 – Material
Requirements Planning (MRP)
 Example (Chair Assembly)
Week Number 1 2 3 4 5 6
Part: Back Gross Requirements 300
Support Scheduled Receipts 60
LT: 2 Projected On-hand 20 20 20 80
Net Requirements 220
Planned-order Receipts 220
Planned Order Releases 220

Chapter 13 – Material
Requirements Planning (MRP)
 Lot Sizing Rules
Week Number 1 2 3 4 5 6
Part: Back Gross Requirements 300
Support Scheduled Receipts 60
LT: 2 Projected On-hand 20 20 20 80
Net Requirements 220
Planned-order Receipts 220
Planned Order Releases 220

Suppose that the lot-size of back support units is 50.

 Can only produce at multiples of 50.
Week Number 1 2 3 4 5 6
Part: Back Gross Requirements 300
Support Scheduled Receipts 60
LT: 2 Projected On-hand 20 20 20 80 30 30
Net Requirements 220
Planned-order Receipts 250
Planned Order Releases 250
Chapter 13 – Material
Requirements Planning (MRP)