DAO2703 OTM

Week 5
Material Requirements Planning
(MRP)

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 Course Structure
Introduction to OTM;
Managing the Overview
Transformation Process

Process Types; Advanced Recognizing

Operations Technologies;
Process Analysis the Plant
Aggregate
Production Planning
Planning for
Inventory Material Require- the Plant;
Management ments Planning
PP&C Cycle
Operations Waiting Line
Scheduling Management

Quality Improving the

Lean Operations
Management Plant
Operations Strategic
Strategies Considerations
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 From Aggregate Planning (AP) to
Material Requirements Planning (MRP)
Aggregate Plan

Master Production
Schedule

Material Requirements
Plan
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 From Aggregate Planning (AP) to
Material Requirements Planning (MRP)

Master Schedule (of finished goods):

Specifies what is to be made and when
Input to MRP for (Material Requirements) Planning
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 MRP Inputs, Processing & Outputs
Material Requirements Planning (MRP)
A methodology used for planning the production of assembled products
A computer-based information system for ordering and scheduling of
dependent demand items
Dependent demand refers to demand for items that are
subassemblies, components, or raw materials used in production of
finished goods
The MRP is designed to answer three questions
What is needed?
How much is needed?
When is it needed?

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 MRP Inputs, Processing & Outputs
MRP inputs MRP processing MRP outputs

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 MRP Inputs
Master Schedule (Master Production Schedule)
Time-phased plan specifying timing and quantity of production for each
end item
Example:

MPS Time Period

Item 1 2 3 4 5 6 7 8
BMX 75 90 89 70 100 80 80 80
Folding Bike 0 60 0 80 0 50 0 50
Mountain Bike 50 100 35 20 10 20 0 0
Road Bike 100 150 120 125 110 120 120 120
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 MRP Inputs
(Indented) Bill of Materials
List of raw materials, parts, subassemblies needed to produce end item
LEVEL ITEM Unit of Measure Quantity

0--- - Bike ea. 1

-1-- - Handlebar ea. 1
-1-- - Frame Assembly ea. 1
--2- - Wheel ea. 2
---3 - Spoke ea. 25
---3 - Tire Rim ea. 1
--2- - Frame ea. 1
---3 - Aluminum Tubing ft. 3
---3 - Paint gal. 0.5
-1-- - Seat ea 1
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 MRP Inputs
Product Structure Tree

Bike (1) Level 0

Handlebar (1) Frame Assembly (1) Seat (1) Level 1

Wheel (2) Frame (1) Level 2

Aluminum
Spoke (25) Tire Rim (1) Paint (0.5 gal.) Level 3
Tubing (3 ft.)

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 MRP Inputs
Assembly Diagram (and Product Structure Tree)

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 MRP Inputs
Inventory Records (Inventory Master File)
Includes information on the status of each item by time period (time
buckets)
Gross requirements
Scheduled receipts
Expected amount on hand
Other details for each item such as
Supplier
Lead time
Lot-size policy
Changes due to stock receipts and withdrawals
Canceled orders and similar events

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MRP Processing: MRP Schedule
Item: LT: Beg.
1 2 3 4 5 6 7 8
Lot size: Inv.
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Gross requirements: Total expected demand in each period
Scheduled receipts: Open orders scheduled to arrive at beginning of period
Projected on hand: Expected inventory on hand at the beginning of each period
Net requirements: Actual amount needed in each period (adjust for on-hand inventory)
Planned-order receipts: Quantity expected to be received at the beginning of the period
Planned-order releases: Planned amount to order in each period (= planned order receipts, offset by lead time)
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 MRP Processing
Example 1:
A firm that produces wood shutters and bookcases has received two
orders for shutters: one for 100 shutters and one for 150 shutters.
The 100-unit and 150-unit orders are due for delivery at the start of weeks 4
and 8 of the current schedule, respectively
Each shutter consists of two frames and four slatted wood sections
The wood sections are made by the firm, and it takes one week to fabricate
The frames are ordered, and lead time is two weeks
Assembly of the shutters requires one week
There is a scheduled receipt of 70 wood sections at the beginning of week 1
Determine the size and timing of planned-order releases necessary to
meet delivery requirements if lot-for-lot ordering is used.

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 MRP Processing
Master schedule:

Week number 1 2 3 4 5 6 7 8
Quantity 100 150

Product structure tree:

Shutter

Frames(2) Wood sections(4)

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 MRP Processing
Master Week number 1 2 3 4 5 6 7 8
Schedule for
Shutter Quantity 100 150

Item: Shutter LT: 1 wk Beg.

1 2 3 4 5 6 7 8
Lot size: Lot-for-Lot Inv.
Gross requirements 100 150
Scheduled receipts
Projected on hand
required Net requirements 100 150
Planned-order receipts 100 150
Planned-order releases 100 150
recieve by week 3 and 7
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 Item: Frame(2) LT: 2 wks Beg.
1 2 3 4 5 6 7 8
Lot size: Lot-for-Lot Inv. 100 x 150 x
2 2
Gross requirements 200 300
Scheduled receipts
Projected on hand
Net requirements 200 300
Planned-order receipts 200 300
release purchase order 2 weeks in advancein order to recieve them by week 3 and 7
Planned-order releases 200 300
Item: Wood(4) LT: 1 wk Beg.
1 2 3 4 5 6 7 8
Lot size: Lot-for-Lot Inv.
Gross requirements 400 600
Scheduled receipts 70
Projected on hand 70 70 70
Net requirements 330 600
Planned-order receipts 330 600
Planned-order releases
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330 600
 MRP Processing
MRP processing takes the end item
requirements specified by the master
schedule and “explodes” them into
time-phased requirements for
assemblies, parts, and raw materials
offset by lead times
final stage
The MRP is based on the product
structure tree diagram
Requirements are determined level by
level, beginning with the end item and
working down the tree
The timing and quantity of each
“parent” becomes the basis for
determining the timing and quantity of
the “children” items directly below it
The “children” items then become the
“parent” items for the next level, and so
on

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 MRP Processing
Example 2: E

B(2) J(3)

J(4) F(2)
80 units of end item E are needed at the beginning of week 6
3 cases (30 units per case) of item J have been ordered and they will arrive
over weeks 3 – 5 (1 case per week)
Item J must be ordered by the case, and item B must be produced in
multiples of 120 units
60 units of item B and 20 units of item J are now on hand
Lead times are two weeks each for items E and B, and one week for item J
Prepare a material requirements plan for item J
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 MRP Processing
Master Week number 1 2 3 4 5 6
Schedule for E Quantity 80

Item: E LT: 2 wks Beg.

1 2 3 4 5 6
Lot size: Lot-for-Lot Inv.
Gross requirements 80

Scheduled receipts
Projected on hand
Net requirements 80

Planned-order receipts 80

Planned-order releases 80

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 Item: B(2) LT: 2 wks Beg.
1 2 3 4 5 6
Lot size: Multiples of 120 Inv.
Gross requirements 160

Scheduled receipts
Projected on hand 60 60 60 60 60 20 20

Net requirements 100

Planned-order receipts 120

Planned-order releases 120

Items: J(4) & J(3) LT: 1 wk Beg.

1 2 3 4 5 6
Lot size: Multiples of 30 Inv.
Gross requirements 480 240

Scheduled receipts 30 30 30

Projected on hand 20 20 20 50 80 20+30= 50

Net requirements 460 160

180
Planned-order receipts 480
sell multiples of 30,
so if need 160, mim order is 180
Planned-order releases
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480 180
 Updating the MRP System
An MRP is not a static document
Some orders will have been completed
Other orders will be nearing completion
New orders will have been entered
Changes may have been made to the existing orders
Changes in quantity
Delays
Missed deliveries of parts or raw materials
Two basic updating systems
Regenerative system (updates MRP records periodically)
Batch system: compiles all changes that occur within the time interval and
periodically updates the system

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 Updating the MRP System
Revised production plan is developed in the same way the original plan was
developed
Suitable for fairly stable systems
Advantage: lower processing costs
Disadvantage: time lag between the availability of information and its
incorporation into the MRP
Net-change system (updates MRP records continuously)
Production plan is modified to reflect changes as they occur
Only the changes are exploded through the system (level by level)
The entire plan would not be regenerated
Suitable for systems that have frequent changes
Advantage: up-to-date information for planning and control
Disadvantages: higher processing costs and the continuous changes caused
by many small changes
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 MRP Outputs
Primary Outputs
Planned orders
A schedule indicating amount & timing of future orders
Order releases
Authorizing the execution of planned orders
Changes
Revisions of dates/quantities or cancellation of orders
Secondary Outputs
Performance-control reports
System operation: deviations from plans; cost info (missed deliveries &
stockouts)
Planning reports
Data useful for assessing future material requirements (purchase commitments)
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 MRP Outputs
Exception reports
Data on major discrepancies encountered (late/overdue orders; excessive scrap
rates; requirements for nonexistent parts)
Inventory transaction
Update the inventory records (one of the inputs)

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 Other MRP Considerations
Safety Stock
Theoretically, no need safety stock for dependent demand items
Quality/delivery problems (variabilities): need safety stock
A bottleneck process or one with varying scrap rates may cause shortages in
downstream operations
Shortages may occur if orders are late, or fabrication or assembly times are
longer than expected
When lead times are variable, use safety time
Scheduling orders for arrival or completion earlier than needed
Reduces the chance (probability) of shortage

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 Other MRP Considerations
Lot-sizing
Lot-Sizing Rules: account for Order Cost versus Holding Cost
Lot-for-Lot (L4L) ordering
Order or run size is set equal to the demand for that period
Results in variable order quantities and setup needed for each run/order
Low holding cost but high order cost
Economic Order Quantity (EOQ)
Can lead to minimum costs if usage of item is fairly uniform
May be the case for lower-level items that are common to many different
‘parents’
Less appropriate for ‘lumpy demand’ items because inventory remnants often
result
Fixed Period ordering eg: every month/ every three months make order

Order quantity to cover for a predetermined number of periods of demand

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 Other MRP Considerations
Planning Horizon (Time Buckets)
Covers at least the Cumulative Lead Time
Sum of lead times of sequential phases from ordering parts/raw materials to
completion of final assembly

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 Other MRP Considerations
Assembly Time Chart

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 MRP at Wheeled Coach Ambulance
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Source: Heizer, Jay, et al. (2020), p. 598 - 599
 MRP in Services
Hospitals
Surgeries require known equipment, materials, and supplies
MRP helps to improve the scheduling and management of expensive
surgical inventory
Hotels
Marriott develops a BOM and a bill of labor when it renovates each of
its hotel rooms
BOM is then exploded to determine the materials, furniture, and
decorations required; used by the purchasing department and
contractors
Restaurants
The meal is an end item in the master schedule
Meal components: ingredients and side dishes (bread, vegetables, and
condiments) are dependent on the demand for meals
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 MRP in Services

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Source: Heizer, Jay, et al. (2020), p. 617
 MRP Benefits
Enables managers to
Determine the quantities of each component for a given order size
Know when to release orders for each component
Be alerted when items need attention
Other benefits include
Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
A means of allocating production time
Ability to determine inventory usage via backflushing
Backflushing
Exploding an end item’s BOM to determine the quantities of the
components that were used to make the item
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 MRP Requirements
To implement an effective MRP system requires
A computer and the necessary software to handle computations and
maintain records
MRP Software
Katana MRP Software
MRP easy
Acumatica
Epicor Software
Genius ERP
Oracle NetSuite
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data files
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 MRP Difficulties
Challenge of inaccurate data
Missing parts
Ordering incorrect numbers of items
Inability to stay on schedule
Other problems
Assumptions of constant lead times
Products being produced differently from the BOM
Failure to alter a BOM when customizing a product
Inaccurate forecasts

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 Manufacturing Resources Planning (MRP II)
Expanded approach to
production resource planning,
involving other areas of the
firm in the planning process
and enabling capacity
requirements planning
Most MRP II systems have the
capability of performing
simulations to answer a variety
of “what if” questions so they can
gain a better appreciation of
available options and their
consequences

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 Closed-Loop MRP
When MRP II systems began to include feedback loops, they
were referred to as Closed-Loop MRP
System evaluates a proposed material plan relative to available
capacity
If proposed plan is not feasible, it must be revised
This evaluation is referred to as capacity requirements planning
Capacity Requirements Planning (CRP)
The process of determining short-range capacity requirements
Inputs to capacity requirement planning
Planned-order releases for the MRP
Current shop loading
Routing information
Job time
Key outputs
Load reports for each work center
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 Closed-Loop MRP
Load Reports
Department or work center reports that compare known and expected
future capacity requirements with projected capacity availability

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 Enterprise Resource Planning (ERP)
A computerized system designed to connect all parts of a
business organization as well as key portions of its supply
chain to a single database for information sharing
The next step in an evolution that began with MRP and evolved
into MRP II
Like MRP II, typically has an MRP core
Provides a system to capture and make data available in real
time to decision makers and other users throughout an
organization
ERP systems are composed of a collection of integrated
modules
Leads to the Computer Integrated Enterprise (CIE)
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 MRP and ERP Information Flows

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 Overview of ERP Software Modules
Module Brief Description
Accounting/Finance A central component of most ERP systems. It provides a range of financial reports,
including general ledger, accounts payable, accounts receivable, payroll, income
statements, and balance sheets
Marketing Supports lead generation, target marketing, direct mail, and sales
Human Resources Maintains a complete data base of employee information such as date of hire, salary,
contact information, performance evaluations, and other pertinent information
Purchasing Facilitates vendor selection, price negotiation, making purchasing decisions, and bill
payment
Production Planning Integrates information on forecasts, orders, production capacity, on-hand inventory
quantities, bills of material, work in process, schedules, and production lead times
Inventory Management Identifies inventory requirements, inventory availability, replenishment rules, and
inventory tracking
Distribution Contains information on third-party shippers, shipping and delivery schedules, delivery
tracking
Sales Information on orders, invoices, order tracking, and shipping
Supply Chain Management Facilitates supplier and customer management, supply chain visibility, and event
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 SAP’s Modules for ERP

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 ERP Software Vendors

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Source: [Link]
 ERP Software Vendors

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Source: [Link]
 ERP Software Vendors

Overall – Top 10

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Source: [Link]