Chapter 15

MRP and ERP

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 Dependant Demand

Dependent demand: Demand for items that are subassemblies or

component parts to be used in production of finished goods.
Indep. Demand

Dep. Demand
“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time 2
 MRP

Material requirements planning (MRP): Computer-

based information system for ordering and
scheduling of dependent demand inventories

It is a production planning process that starts from the

demand for finished products (independent demand) and
plans the production step by step of subassemblies and
parts (dependent demand).

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MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction

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 MRP Inputs: 1. MPS

• Master Production Schedule: MPS

• Time-phased plan specifying timing and quantity of
production for each end item.
• MPS comes from sales and marketing
• MPS covers about 1-3 months into the future
– Must cover cumulative lead time
Cumulative lead time: The sum of the lead times that
sequential phases of a process require, from ordering of
parts or raw materials to completion of final assembly.
– From Now until Cumulative lead time plans are generally
frozen
• Sometimes MPS is capacity filtered
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Planning Horizon and Cumulative Lead Time

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10

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 MRP inputs: 2. BOM

Bill of materials (BOM): A listing of all of the

raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a
product.
Product structure tree: Visual depiction of
the requirements in a bill of materials, where all
components are listed by levels.

Most often people do not use the term product

structure tree. Instead use BOM to mean the
product structure tree.

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 Product Structure Tree

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

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 Explosion Example

• How many leg assemblies are needed for 1

chair?
• How many Cross bars are needed for 5 chairs?

• Computing how many parts are required per a

final product is called BOM explosion.

• MRP answers these questions in view of

production lead times: Not only it tells how many,
but also when.
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 Assembly Time Chart

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
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Days
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 MRP input: 3. Inventory levels
• Beginning inventory on hand
• Scheduled receipts
– Pipeline inventory not received yet but it is in the
process of coming to the inventory. We know
when this will be available for use.

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 MRP Processing

• Gross requirements: (Forecasted)Demand period by period

• Net requirements(t)
=Gross requirements(t)-Projected inventory(t-1)
-Scheduled receipt(t)
• If Net requirement(t) > 0
set Planned order receipts(t)>=Net requirement(t)
• Planned-order receipts is the production planned
• Projected inventory(t)
=Projected inventory(t-1)+Scheduled receipt(t)
+Planned order receipts(t)-Gross requirements(t)
• Planned order release(t-LT)=Planned-order receipts(t) 12
 MRP example with LT=2

Periods 0 1 2 3
Gross requirements 6 11 7 Inputs
Scheduled receipts 2 3 0
Projected on hand 10 6 0 0
Net requirements 0 2 7
Outputs
Planned order receipts 2 7
Planned order releases 2 7

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 Other Considerations

• Safety Stock
– Not much for items with dependent demand
• Lot sizing
– Lot-for-lot ordering
– Economic order quantity
– Fixed-period ordering
– Part-period model

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 MRP example with Lot size=5 and LT=2

Periods 0 1 2 3
Gross requirements 6 11 9 Inputs
Scheduled receipts 2 3 0
Projected on hand 10 6 3 4
Net requirements 5 10
Outputs
Planned order receipts 5 10
Planned order releases 5 10

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 MRP updates
• Regenerative MRP
– Do the planning from scratch
– Time between regenerations is long
– Ok for stable environments
• Net Change MRP
– Update the plan according to changes

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 MRP Outputs

• Planned orders - schedule indicating the amount and

timing of future orders.
• Order releases - Authorization for the execution of
planned orders.
• Changes - revisions of due dates or order quantities, or
cancellations of orders.
• Performance-control reports
• Planning reports
• Exception reports

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 Capacity Planning

Capacity requirements planning: The process

of determining short-range capacity requirements.

Load reports: Department or work center reports

that compare known and expected future capacity
requirements with projected capacity availability.

Time fences: Series of time intervals during which

order changes are allowed or restricted.

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 MRP Planning

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity

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 MRP in Services

• Food catering service

– End items are the catered food
– Dependent demands are ingredients for
each recipe, i.e. bill of materials
• Taco Bell menu items
• Hotel renovation
– Activities and materials “exploded” into
component parts

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 Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time

Eventually it is a database with limited decision

making capability

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 Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date inputs:
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data

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 MRP II

• Expanded MRP with and emphasis

placed on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing

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 MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?

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 ERP

• Enterprise resource planning (ERP): An

expanded effort to integrate
standardized record-keeping that will
permit information sharing throughout
the organization

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