Lecture 10: Material
Requirement Planning
Operations and Supply Chain Management
Dr. Ola Mamdouh
MBA Program
Course Weekly Plan
Week Topic Readings
1 Introduction to Operations and Supply Chain Management Ch.1 Jacobs Book
2 Strategy Ch. 2 Jacobs Book*
3 Quality Management Ch. 12 Jacobs Book*
4 Lean Supply Chains Ch. 14 Jacobs Book*
5 Forecasting Ch.18 Jacobs Book*
6 Midterm (MCQ)
7 Sales and Operations Planning Ch. 19 Jacobs Book*
8 Inventory Management Ch. 20 Jacobs Book*
9 Coordination Across the Supply Chain Chopra, S. and Meindl,
P. (2015) Supply Chain
Management Strategy,
Planning, and
Operation. 6th Edition,
Pearson, London
10 Sustainability Across the Supply Chain Circular Economy in
Sustainable Supply
Chains *Main Textbook Reference:
A Global Perspective on
Challenges, Concepts F. R. Chase and R. B. Jacobs, Operations
and Cases and Supply Chain Management, 16th ed.,
11 Material Requirement Planning Ch. 21 Jacobs Book*
Global Edition, 2021 McGraw-Hill.
12 Final Exam
Chapter 12: Learning Objectives
You should be able to:
LO 12.1 Describe the conditions under which MRP is most appropriate
LO 12.2 Describe the inputs, outputs, and nature of MRP processing
LO 12.3 Explain how requirements in a master production schedule are translated into material
requirements for lower-level items
LO 12.4 Discuss the benefits and requirements of MRP
LO 12.5 Describe some of the difficulties users have encountered with MRP
LO 12.6 Describe MRP II and its benefits
LO 12.7 Explain how an MRP system is useful in capacity requirements planning
LO 12.8 Describe ERP, what it provides, and its hidden costs
Lecture Agenda
➢ Explain what material requirements planning (M RP)
is.
➢ Understand how the MRP system is structured.
➢ Analyze an MRP problem.
➢ Evaluate and compare M RP lot-sizing techniques.
Inside the iPhone 1
• Cameras–made by Genius Electronic Optical, $35.00.
• Processor–made by Apple Computer, $28.00.
• 5G R F chipset–made by Qualcomm, $18.00.
• Power management integrated circuits–made by Dialog
Semiconductor, $14.00.
• Memory–made by Toshiba and S K Hynix, $33.00.
• R F power amplifier–made by Avago, $16.60.
• User interface integrated circuits–made by Cirrus Logic, $10.00.
• Sensors–made by Bosch, A L P S, A M S, and S T Microelectronics,
$2.35.
5
Inside the iPhone 2
• TrueDepth sensing components–made by ST Microelectronics
and Texas Instruments, $16.70.
• Bluetooth module–made by Murata Manufacturing, $7.35.
• Battery–made by Sunwoda Electronics, $6.00.
• Touchscreen display–made by Samsung, $110.00.
• Rear enclosure–many manufacturers, $61.00.
• Power supply, headset–many manufacturers, $12.00.
6
Inside the iPhone:
Bill–of–Materials
• The long list from the past two slides may be
considered as bill–of–materials used to build an
iPhone.
• These are produced in various factories in China,
Taiwan, and India and assembled in a factory in
China.
• Coordinating all these components and delivering
them on time to the assembling factory in China is
critical to Apple’s success. If even a single one of
these items is short, assembly will have to stop.
• Materials Requirements Planning (M R P) is the key to
this coordination, resulting in successful and
efficient assembly of iPhones.
7
MRP
• Material requirements planning
(MRP):
• A computer-based information
system that translates master
schedule requirements for end
items into time-phased
requirements for subassemblies,
components, and raw materials.
• The MRP is designed to answer
three questions:
1. What is needed?
2. How much is needed?
3. When is it needed?
MRP Inputs: Master
Schedule
• Master schedule:
• One of three primary inputs in MRP; states which end
items are to be produced, when these are needed, and in
what quantities.
• Managers like to plan far enough into the future so they
have reasonable estimates of upcoming demands
• The master schedule should cover a period that is at least
equivalent to the 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 the final assembly.
Cumulative Lead Time
12-10
MRP Inputs: Bill of
Materials
• Bill of Materials (BOM)
• A listing of all of the assemblies,
subassemblies, parts, and raw materials
needed to produce one unit of a product
• Product structure tree
• A visual depiction of the
requirements in a bill of materials,
where all components are listed by
levels
Assembly Diagram and
Product Structure Tree
12-12
MRP Inputs: Inventory Records
• Inventory records
• Includes information on the status of each item by time
period, called time buckets
• Information about
• 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
Assembly Time Chart
• An assembly time chart in Material
Requirements Planning (MRP) is a
visual tool used to represent the time
schedule for assembling products.
• It outlines the sequence of
operations and the time required for
each stage of the assembly process.
MRP Outputs: Primary
• Primary Outputs
• Planned orders
• A schedule indicating the amount and timing of future orders
(suggestions)
• Order releases
• Authorizing the execution of planned orders (actual orders)
• Changes
• Revisions of the dates or quantities, or the cancellation of
orders
MRP Outputs: Secondary
• Secondary Outputs
• Performance-control reports
• Evaluation of system operation, including
deviations from plans and cost information
• e.g., missed deliveries and stockouts
• Planning reports
• Data useful for assessing future material
requirements
• e.g., purchase commitments
• Exception reports
• Data on any major discrepancies
encountered
• E.g., late and overdue orders,
excessive scrap rates, requirements
for nonexistent parts
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
MRP Record
Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Gross requirements Net requirements
• Total expected demand • Actual amount needed in each time period
Scheduled receipts Planned-order receipts
• Open orders scheduled to arrive • Quantity expected to received at the beginning of the
Projected Available period offset by lead time
• Expected inventory on hand at the beginning of Planned-order releases
each time period • Planned amount to order in each time period
MRP: Development
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 “children” items then become the “parent” items
the basis for determining the timing and quantity of
for the next level, and so on
the “children” items directly below it.
12-19
Example MRP
Shutter
Wood
Frames (2)
sections (4)
12-20
Example MRP
Updating the System
• An MRP is not a static document
• As time passes
• Some orders get completed
• Other orders are nearing completion
• New orders will have been entered
• Existing orders will have been
altered
• Quantity changes
• Delays
• Missed deliveries
MRP Benefits
• Enables managers to easily
• determine the quantities of each component for a given order size
• To know when to release orders for each component
• To be alerted when items need attention
• Additional benefits
• Low levels of in-process inventories
• The ability to track material requirements
• The ability to evaluate capacity requirements
• A means of allocating production time
• The ability to easily determine inventory usage via backflushing
• Exploding an end item’s BOM to determine the quantities of the components that were used to make
the item
• To implement an effective MRP system
requires:
• A computer and the necessary software to
MRP handle computations and maintain records
• Accurate and up-to-date
Requirements • Master schedules
• Bills of materials
• Inventory records
• Integrity of data files
MRP Difficulties
Consequence of Inaccurate Other problems
Data
Missing parts Assumptions of constant lead times
Ordering incorrect numbers of items Products being produced differently from the
Inability to stay on schedule BOM
Failure to alter a BOM when customizing a
product
Inaccurate forecasts
MRP II
• 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
Key Features
• Integration: MRP II integrates various business functions, including production planning, inventory control,
scheduling, finance, and human resources, providing a holistic view of the manufacturing process.
• Resource Planning: It goes beyond materials to include all resources required for production, such as labor,
machinery, and facilities.
• Closed-Loop System: MRP II is often described as a closed-loop system because it continually updates its plans
based on feedback from production and inventory levels, allowing for adjustments in real-time.
• Capacity Planning: Includes tools for capacity planning, helping organizations balance production capacity with
demand.
• Simulation and What-If Analysis: Allows managers to simulate different scenarios and evaluate the impact of
changes in production schedules, inventory levels, and resource allocation.
12-26
Enterprise Resource Planning
• Enterprise resource planning (ERP)
• ERP was the next step in an evolution that began with MRP and evolved into MRPII
• ERP, like MRP II, typically has an MRP core
• ERP 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
12-27
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, ad 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
management
ERP Project Organization
The ‘big bang’ Franchising strategy Slam Dunk
Companies cast off all of their Independent ERP systems are ERP dictates the process design
legacy systems at once and installed in each business unit of where the focus is on a few key
implement a single ERP system the enterprise while linking processes
across the entire company common processes across the More appropriate for smaller
The most ambitious and difficult enterprise companies expecting to grow into
implementation approach Suits large or diverse companies ERP
that do not share many common
processes across business units
ERP Considerations
• How can ERP improve a company’s business performance?
• How long will an ERP implementation project take?
• How will ERP affect current business processes?
• What is the ERP total cost of ownership?
• What are the hidden costs of ERP ownership?
12-30
Thank You