Workshop

MRP-Material Requirements Planning

The Workshop road map

Session 1 Introduction to MRP

Session 2 Introduction to Inventory Management

Session 3 How to MRP ?

Session 4 Case Study & the discussion

 Session 1
Introduction to MRP-Material Requirements Planning
Warm Up
 Introduction
The acronym MRP is used in Two different but related contents, these different but related contents are :-

MRP I
• Material Requirement Planning ERP

MRP II MRP II

• MRP II is an extension of materials requirement planning (MRP).

MRP I
• MRP II is sometimes referred to as a closed-loop system.

ERP
• Enterprise Resource Planning
 Introduction
MRP I MRP II ERP

Stand for Material Requirement Stand for Manufacturing Resource Stand for Enterprise Resource
Planning. Planning. Planning.

Includes Includes Includes

Master Production Schedule. Machines Capacity Scheduling. The Core Finance ( AP, AR,…).

Inventory Records. Demand Forecasting. Supply Chain Management.

Bill of Materials. Quality Assurance. Project Management

General Accounting. Human Resources.

Marketing
 Nature of Demand and Supply
The Nature of Demand

Independent demand :
• The Independent Demand occurs(Forecasted) by the request of
customers for products.
• usually used for production planning/MPS and is not used for
MRP.
dependent demand :
• The dependent Demand is calculated according to the independent
demand.

• Usually used for MRP (How much is required).

Demand
is the number of units of a specific product that its consumers are
willing to purchase at each price
 Nature of Demand and Supply
Push Pull
Push vs Pull Strategy
• Products are from production up • In a pull-based supply chain, procurement,
to the retailers. production, and distribution are demand-
Logic • This means that production
driven rather than based on predictions
happens based on demand • Goods are produced in the
forecast. amount and time needed.

• A push production creates How it • No dependency on Demand nor • Dependent on Demand and
products without having a work limits on WIP. limitations to WIP.
specific customer request (make- • The Pull System is a lean manufacturing
• A company using the push system will forecast
to-stock). demand and employ the Material method that uses the Just-in-Time strategy of
MRP Link Requirements Planning (MRP) process to not producing goods until an order is
produce goods and services ahead of time. This received. Instead of forecasting demand, the
is related to the Just-in-Case concept. pull system produces ‘as needed’.

• The push system is particularly useful for • This is particularly useful for companies
When to products with low demand uncertainty that deal with high demand uncertainty,
• A pull production supposedly use or with high importance of economies of low product mix, and low importance of
produces only if there is a request scale in reducing costs. economies of scale.
for a product by the end
customer (make-to-order).
 Types of Work
The types of work and the relationships

Planned Work Unplanned Work

Dependent Demand Independent Demand

Material Planning
Inventory Control
(MRP)
Introduction
 MRP Definitions

• Material requirements planning (MRP) is the earliest computer-

based inventory management system designed to improve
productivity for businesses.

• Companies use material requirements-planning systems to

estimate (Calculate) quantities of raw materials and schedule
their deliveries.

• MRP is the last priority Planning Level.

Manufacturing Planning and Control Process

 Objective of MRP
MRP is designed to answer three questions

1. What is Needed ?

• To keep priorities (planned order release and receipt dates).

2. How much is Needed ?

• React to changes in supply and demand.

3. When is Needed ?

• Expedite, de-expedite, add, cancel, or change planned orders.

 Inputs of MRP
The Master
Production
Schedule (MPS)

Product
The Planning
Data MRP Structure (BOM)

The Inventory
Record
 Inputs of MRP
1. The Master Production Scheduling
• The master schedule outlines the anticipated production activities of the plant.
• Developed using both internal forecasts and external orders.
• it states the quantity of each product that will be manufactured and the time frame in which they will be needed.
• The master schedule separates the planning horizon into time "buckets," which are usually calendar weeks.
• The schedule must cover a time frame long enough to produce the final product.
• It is important to note that master schedules are often generated according to demand and without regard to capacity.
• An MRP system cannot tell in advance if a schedule is not feasible, so managers may have to run several possibilities
through the system before they find one that works.
 Inputs of MRP
2. The Bill of Materials (BOM)
• A listing of all Qnty of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

• Bill of Materials used to in conjunction with the Master Production Schedule (MPS) to determine the items for which
purchase requisitions and the Production orders must be released.

The Product Structure and the environment

Name or definition Industry

Bill of Materials (BOM) For assembly or production lines

Bill of quantities (BOQ) For construction environment

Gradients Pharma and medicine industry

Recipes Food or FMCG

 Inputs of MRP
The Contents of a bill of materials
A BOM typically includes the following for every component of a product or its packaging
• Part number, description, unit, criticality.
• Unit price, tooling price, sample price.
• Payment terms, delivery terms, lead time, Min Order Quantity.
• Supplier contact information.
• Supplier approval status.
• Follow up actions.
• Quality standard status (approved sample, checklist…).
• Specification and/or drawing status.
 Inputs of MRP
How does a BOM evolve over time, and when?

Step 1 Step 2 Step 3

Initial manufacturing and manufacturing
Initial (Concept) Bill of Materials Design and development BOM BOM

• Start as a rudimentary list of • list a lot of information that

components, with their corresponding was gathered and confirmed
prices, MOQs, lead times, and as the detailed design work,
suppliers.
and the prototypes, are • It keeps evolving, as Engineering
brought to life. Change Requests come in and as
suppliers that fail to deliver a
certain level of performance get
• The idea is to have a rough • once a full work-alike and replaced.
idea of the total price & lead looks-alike prototype is
time and to grasp the approved, the BOM should
complexity of the product. be able to reliably tell the
total price of the
components.
 Inputs of MRP
Representing the bill of materials (BOM)
 Inputs of MRP
A. Single Level Bill Of Materials (BOM)
• In this type, each assembly or subassembly is shown only once, with the corresponding quantity required of each to make the product.
• this type of BOM is unsuitable for complex products because it does not specify the relationship between parent and child parts or between
assemblies and subassemblies.
• If the product fails, a single-level BOM makes it difficult to determine which part needs to be replaced or repaired.
A is a parent of B and C
B and C is a child of A

C is a parent of D
D is a child of C

Single BOM
 Inputs of MRP
B. Multi Level Bill Of Materials (BOM)
• Takes more work to create but offers greater details and specificity on the parent and child parts in the product.
• The total material required is shown. Additionally, the product structure is indented to show the relationship
between the parent and child product, as well as assemblies and subassemblies

Structure of a Multi Level BOM

• The structure of a multi level BOM resembles a family tree, and maps out all components and sub assemblies for a
product.
• Each BOM level will detail all the components that are directly or indirectly used in the production of a parent item.
• The purchased parts and raw materials can also be found within a BOM level, which will look something like a BOM
tree.
 Inputs of MRP
Multi Level Bill Of Materials (BOM) Types
Intended BOM

Represent BOM

Modular Planning
Single Level BOM Multi Level BOM
BOM

Summarized
Indented BOM
BOM

Summarized BOM
 Inputs of MRP
What Is a Subassembly?
• Several components put together to make a unit, which can then be used as a part for a larger assembly, or a
finished product.
• A subassembly can also function as a finished product too, which can be sold separately to customers or used to
finish the construction of another product.
• Subassembly is, as this is a key part of developing your multi level BOM.
• It’s important to know what a This means you’ll need intimate knowledge of your materials, components, and
subassemblies to carefully develop your indented bill of materials.
 Inputs of MRP
Importance and Purpose of Multi Level BOM
The purpose of having your multi level BOM is

• Overview of Assemblies: To have greater details and specificity on the parent and sub-assemblies in the product, and
their exact relationship between the sub assemblies and the finished product.

• Prevent Errors when Dealing with Sub-Assemblies: If your manufacturing business is scaling, it becomes necessary
to breakdown your products into sub-assemblies, and them into smaller sub-assemblies and components and so
on, which will be essential in preventing errors and help accurately tracking parts.
 Inputs of MRP
C. Modular Planning BOM
• A modular bill of materials (modular BOM) is type of bill of materials (BOM) and a critical element in defining the
product structure of an end-item.
• Modular BOMs define the component materials, documents, parts and engineering drawings needed to complete
a sub-assembly.
• It may include historical average of demand expressed as percentage of the total demand for all options within a feature
or for specific end item within a product family.
• An artificial graphing of items or events in BOM format used to facilitate the MPS and Materials Planning.

Bicycle

Modular Planning BOM

Color Size
Common Parts Blue 30% Small 50%
Red 50% Medium 25%
100% Large 25% Planning bills are not specific lists for specific products.
White 20%
 Inputs of MRP
Definition related to the BOM
• The Single unit ✓ BOM List of all parts needed to make exactly one unit.

✓ Each part gets a unique code, if the same part code is on a different bill, it will be the same
• Unique identifier exact part.

• Quantities and units ✓ BOMs list the Qnty of each part used to make one unit and the unit of measure is specified.

✓ BOMs clearly indicate what is and is not used in a unit.

• Scope
✓ If the part is not listed on the BOM, it is not used in that unit.
 Inputs of MRP
A well-defined BOM helps companies:

1. Plan purchases of raw materials.

2. Track and plan material requirements.

3. Ensure supply robustness and reduce waste.

4. Estimate material costs

5. Maintain accurate records

6. Gain inventory control

 Inputs of MRP
3. Inventory Records
• The inventory records file provides an
• The inventory records file is used to track
accounting of how much inventory is already
information on the status of each item by time
on hand or on order, and thus should be
period.
subtracted from the material requirements.

• This includes gross requirements, scheduled receipts, and the expected amount on hand. It includes other details
for each item as well, like the supplier, the lead-time, and the lot size.
 MRP Environment
MPS-Master
Production Schedule

MRP-Material BOM-Bill of
The Planning Data Requirement Materials/The product
Planning Structure

The Inventory Data

 MRP Environment
The essence of the MRP Logic can be expressed in three relationships :

Exploding Number 1
• Also known as horizontal and vertical dependences.

• Establish end items, subassemblies, components and purchased materials gross number relationships.

Netting Number 2
• Also known gross to net.
• It consider the effect of the current inventories levels.
• Used to calculate the Net Requirements.

Offsetting Number 3
• Also known Lead time offsetting.
• Lead time offsetting is the rime intervals necessary to either manufacturer or purchase the components are referred to
as the lead time.
 MRP Environment

Input Provided Information Process

MPS The Plan is to produce 10 cars Exploding _Vertical and

horizontal dependency_ ( I
BOM Each Car need 1 engine need 10 engines) Netting (I only need 8
engines)
Inventory Level On Hand Stock = 2 engines Offsetting (I will
request the 8 engines
Planning Data This order required after 3 months, Lead time 1 month after 2 months)
 MRP Output
The Output of the MRP

The output (Recommendations) of MRP is not binding

 MRP Output
MRP Reports
Type of report Description Uses Example

• Focus is on the component • Identify parents affected

by an engineering
Where-used • Lists the parents in which a change
report component is used whether • Assess the impact of component
or not there is a current scarcity AND Costing
requirement for it
• Assess impact of
• Focus is on the component component shortages on
• Lists the parents creating a current due dates
Pegging demand for a component (priority plans) for parent
report for which there is a current items requiring the same
requirement components in the same
period
• Includes components by
parent and quantities
demanded by period
 Controlling MRP Output
Managing The priority Plan

Material Requirements Planning Software

MRP software applications

Time-phased priority planning Management support

• Gross, net, offset and explode

requirements. • Provide action messages.

• Create planned orders. • Provide exception

messages.
• Keep priorities current.
 Controlling MRP Output
Controlling Work Orders

The Material Planner

deals with 3 order
 Controlling MRP Output
Controlling Work Orders
 Releasing Planned Orders
Events affecting and the action available

Events affecting the Priority Plan

Available Action

External Internal
Lower yields or higher scrap factors than
Changes to customer orders
planned

Supplier shortages Late or early open order completions

Maintain Priorities Replanning
Late deliveries from supplier Capacity or resource shortages

Material shortages caused by inventory Expedite orders Changes in end-item due date
record inaccuracies
De-expedite orders

Change quantity requirements

Section 1-topic 1 Summary
 Session 1-topic 2
Introduction to MRP-Material Requirements Planning
Warm Up
 Warm Up – Basic Calculations
Assembly diagram & Product Structure tree.
 Warm Up – Basic Calculations

At Level 0, we need 100 SKU of A

B = 2*100 = 200.
We need
C = 1*100 = 100.
for 100 A
D = 10*100 = 1000.
We need
G = 4*2*100 = 800.
for 100 A

We need L = 2*4*2*100 = 1600.

for 100 A

• A is an Independent Demand (Forecasted).

• B,C,D,E,F,G,H,I,K and L are dependent demand (Calculated).
• A is the parent of B,C and D.
• B, C and D are child's of A.
• D, E, F H, I K and L are Purchased items.
The MRP Chart
 The MRP Chart-MRP Logic
The following table or chart is often used to illustrate the management of a dependent item.

• The Item Description. • Gross Requirements.

• The Ordered Lot Size. For the item For the Inventory • On Hand Balance.
• The Lead time. • Net Requirements.
• The Safety Stock
• Scheduled Order Receipts. The MRP Chart

• Planned Order Receipts. For the Orders

For the dates & time • The Periods
• Planned Order Release. (time buckets)
 The MRP Chart-MRP Logic
Time Conventions
Interpreting production and inventory management records requires an understanding of the timing conventions used.

The MRP Chart use the following conventions

Projected on hand Ending Inventory

Gross Requirements
Net Requirements
Scheduled receipts Needed by end of the period
Planned order receipts
Planned order release
 The MRP Chart-MRP Logic
1. For the Inventory terms

• Expected demand for item in each period.

Gross Requirements
• Comes from the net requirements of the next level (upper) in the BOM and ultimately from the MPS.

• The quantity of an item physically in stock according to the system.

On Hand Balance • Can be divided into different categories for quantities are no longer available and for others that are
being processed, are rejected or Booked.
• Inventory needed to meet backorder and safety stock needs.
A Net Requirements
• exists whenever on hand Inventory is less than the Safety Stock.

𝑻𝒉𝒆 𝑵𝒆𝒕 𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕𝒔 = 𝑮𝒓𝒐𝒔𝒔 𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕𝒔 − 𝑶𝒏 𝑯𝒂𝒏𝒅 𝑩𝒂𝒍𝒂𝒏𝒄𝒆

 The MRP Chart-MRP Logic
1. For the Inventory terms

Safety stock is the additional inventory that is held by a company to mitigate risk of stockouts, caused by
Safety Stock fluctuations in supply and demand.

Demand, Sales or Consumption. Variable or Constant.

Basic Factors
Lead time. Variable or Constant.
 The MRP Chart-MRP Logic
1. For the Inventory terms

Methods to Calculate Safety Stock.

1. Average-Max Method (the general equation).

2. Normal Distribution Method.

• Heizer Render’s formula.
• Greasley’s method.

3. Time-based calculation. Based on the future forecast for the product.

4. Fixed safety stock.

 The MRP Chart-MRP Logic
2. For the Orders terms

• Pre-existing orders for items.

Scheduled Receipts • Scheduled to arrive at beginning of the period.
• Comes from orders already released either to manufacturing, production, the shop orders or
to suppliers (the purchase orders).
Planned Order
Releases • Planned order releases for the item (submitted at the beginning of the period).

• Planned order arrivals of the item (arriving at the beginning of the period).
Planned Order
Receipts • Planned order receipts differ from scheduled receipts in that they have not been released.
 The MRP Chart-MRP Logic
2. For the Orders terms

Term Definition

Schedule Order Receipt Planned order to be received in a specific time according to the previous schedule.

Planned order receipt Output of the MRP as a recommendation of when should I receive these order after finishing all process.

Planned Order Release Output of the MRP as a recommendation of when this order should dispatched to the customers.

Available to The projected amount of inventory a business has in stock,

promise (ATP) ready to sell and not allocated for existing customer orders.
 The MRP Chart-MRP Logic
3. For the Time Periods & (Buckets)

• It refers to an individual period indicated by MRP list.

• it shows the size of one period, and how detailed MRP's plan is depends on how long or what days the
bucket is set.
Time Periods &
(Buckets) • The size of bucket is usually 3 to 7 days, and the period to be planned is mostly 3 to 6 months.

• . If the size of bucket is set to 3 days, the planned period is set to 3 months.

• The bucket quantity is related to the MRP's processing time, and thus it should be set within the
necessary period of time.
 The MRP Chart-MRP Logic
3. For the Time Periods & (Buckets)
 The MRP Chart-MRP Logic
4. For the Item

• The Item Description

Tips on Creating Good Item Descriptions
1. Most important: Inventory item descriptions should begin with a
noun (what the item is) followed by the adjectives that describe the
item.
2. Inventory item descriptions should be unique.

3. Avoid loading inventory item descriptions with more information

than absolutely necessary.
 The MRP Chart-MRP Logic
• Low Level Coding • When some items are required at more that one level in the BOM, For example Item B has
A a low level code of 2
Level 0 • Net Requirements for such an item are obtained by adding gross requirements for that item
through the lowest level that the code is found in the BOM structure.
B C
Level 1 Level 1 • BOM software assign a level code to each item corresponding to the lowest level at which
it is required, this called the Low Level Coding.
B
Level 2 It refers to the lowest level code of the item used in
BOM. The level code for not only one product but
also all products is considered.

As shown in the figure, for example, the low level code of Part b used at Level
1 and Level 2 is 2 in Product Z. The low level code set in this way is registered
to each item, and is used to perform a level-by-level explosion.
 The MRP Chart-MRP Logic
• The Lead time

Lead time refers to the time taken – or allowed for – between the start and
completion of an operation or project

• Lead time vs. Cycle time

• Both lead time and cycle time measure the duration it takes from the start of a process to the end.

• Cycle time is the time it takes from the start to the end for an internal process.

• lead time is the duration it takes from the start to the end to fulfill a customer’s request
 The MRP Chart-MRP Logic
• Related terms Involving times
 The MRP Chart-MRP Logic
Lot Sizing The lot Size decision should not be made lightly.

Lot Size =25

The MRP Chart
Lead Time = 2 weeks
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9
Gross requirements 12 15 9 17 8 10 16 7 11
Scheduled Receipts 25 25 - - - - - - -
Projected on hand 0 13 23 14 22 14 4 13 6 20
Planned Order Receipts - - - 25 - - 25 - 25
Planned Order Releases - 25 - - 25 - 25 - -

Lot Size decision affect Factor affecting the Lot Size decision Methods to determine the best Lot Size

• Inventory Levels. • Number of levels of BOM. • Ordering and Carrying Cost.

• Setup and Ordering cost. • Setup or purchasing costs. • Lot for Lot (L4L).

• Capacity Requirements and • Least Unit Cost

• The low level code of the given
availability. • Least total cost
item.
• And the delivery.
• The carrying cost of inventory. • Part Period Balancing

• And Period Order Quantity.

 The MRP Chart-MRP Logic
Lot Sizing
1. Ordering and Carrying Cost
These costs will be compared to the total Set up and Carrying cost for other methods before
discussing other factors.
Ordering
and
Carrying
Cost.

Period
Lot for Lot
Order
Method to (L4L).
Quantity
determine
the best
Lot Size

Part
Least Unit
Period
Cost
Balancing
 The MRP Chart-MRP Logic
Lot Sizing 2. Lot for Lot (L4L)
Assuming the L4L logic
• Orders can be for any Qnty.
• Orders exists in exact quantity that is actually needed, this result in no On-Hand
Ordering inventory.
and
Carrying • In practice no on hand inventory doesn’t always occur because orders arrivers late or
Cost. early, orders are cancelled or Qnty are deliver are under or over those ordered.
Period
Lot for Lot
Order
Method to (L4L).
Quantity
determine
the best
Lot Size

Part Period Least Unit

Balancing Cost

• This method is usually used for perishable food items or for items for which the market fluctuates widely.

• This Method is consistent with the Just in time philosophy of eliminating all unrequired inventory.
 The MRP Chart-MRP Logic
Lot Sizing 3. Least Unit Cost
• This method produces the demands for the present period, then on a trail basis,
evaluate future periods.

Ordering
and
Carrying
Cost.

Period
Lot for Lot
Order
Method to (L4L).
Quantity
determine
the best
Lot Size • The Lot Size Computations of the LUC Method

Part Period Least Unit

Balancing Cost
 The MRP Chart-MRP Logic
Lot Sizing 4. Least Total Cost
• This Method Select the Lot Sizes (Order quantities) and the time to release so as obtain the least total cost
(the min Sum or ordering and carrying costs).
• The Logic of the Least Total Cost is to combining requirements until Carrying costs approximate Ordering costs.
Ordering
and
Carrying
Cost.
Period
Lot for Lot
Order
(L4L).
Quantity
Method to
determine
the best
Calculations for LTC Solutions
Lot Size

Part Period Least Unit

Balancing Cost

Least Total
Cost
 The MRP Chart-MRP Logic
Lot Sizing 5. Part Period Balancing
• Part Period Balancing is a variation of the LTC Least Total Cost approach. It converts
the ordering cost to its equivalence in part periods.
Where
𝑠 EPP >>>is the economic part period.
𝐸𝑃𝐸 = S >>>is the ordering cost.
𝑘
Ordering K >>>>is the carrying cost of one unit for one period.
and
Carrying
Cost.
Period
Lot for Lot
Order
(L4L).
Quantity
Method to
determine
the best
Lot Size
Application of Part
Part Period Least Unit
Balancing Cost Period Balancing.

Least Total
Cost
• Since 116 is the closet value to 115, the requirements for period 2 through 5 should be
included in the order due in Period 1.
 The MRP Chart-MRP Logic
Lot Sizing 6. The Period Order Quantity (POQ)
• This method uses the standard EOQ, Calculating a fixed number of period
Ordering
and Carrying
requirements to include in each other.
Cost.
• The POQ avoids remnants (the quantities carried in inventory until the
Period
Order
Lot for Lot next requirements.
(L4L).
Quantity
Method to
• Using EOQ for discrete demand frequency results in
determine
the best
remnants.
Lot Size
Steps to Calculate the POQ
Part Period Least Unit
Balancing Cost 1. Calculate the EOQ in the standard Manner.

Least Total
2. Use EOQ to calculate N (Number of orders per year).
Cost
3. Calculate the POQ
According to the Following
Where
[Link] the ratio 𝐸𝑂𝑄/𝑅
R is the annual requirements.
𝐸𝑂𝑄 = 2𝑅𝑆/𝐾𝐶
𝑅
S is the Ordering Cost.
K is Holding cost. OR 2. POQ= 𝑅𝑎𝑡𝑖𝑜 ∗ 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑁= C is Carrying Cost (Interest rate).
𝐸𝑂𝑄 N is the numbers of orders per year.

𝑃𝑙𝑎𝑛𝑛𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

𝑃𝑂𝑄 =
𝑁
 The MRP Chart-MRP Logic
Lot Sizing 6. The Period Order Quantity (POQ)

Ordering
and Carrying
Cost.

Period
Lot for Lot
Order
(L4L).
Quantity
Method to
determine
the best Lot
Size

Part Period Least Unit

Balancing Cost

Least Total
Cost

• This approach does not minimize ordering and carrying costs, but it frequently is less costly than ordering each period or
arbitrarily selecting a fixed order period.
 To be continued next Session
Next Session- Inventory Management
 Thank you

• Yousef Mohamed Elsayed

• Supply Chain Planner
• Industrial Engineering background
• 02 01026041908
• [Link]
• Engyousef55@[Link]