Materials Requirements Planning

Chapter 16

McGraw-Hill/Irwin

The McGraw-Hill Companies, Inc. 2007, All Rights Reserved

Chapter 16 Outline
Definition of MRP Systems MRP versus Order-Point Systems MRP Example MRP Elements Operating an MRP System The Successful MRP System

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Introduction to MRP
Used to manage dependent demand items
Raw materials and purchased parts Work in process (WIP)

Driven by the master schedule (which is driven by S&OP). End items exploded into all components using bill of materials (BOM) Schedule offset based on lead times Is the heart of a larger ERP system
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Definitions of MRP Systems

Developed by Joe Orlicky at IBM, 1975.
IBM 370 was the first computer with the capacity to handle MRP calculations

Types of MRP:
Type I. An inventory control system (MRP) Type II. Manufacturing Resource Planning system (MRPII) Type III. Enterprise Resource Planning (ERP) system

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Definitions of MRP Systems

Three principal functions of MRP (Orlicky):
Inventory
Order the right part Order in the right quantity Order at the right time

Priorities
Order with the right due date Keep the due date valid

Capacity
A complete load An accurate (valid) load An adequate time span for visibility of future load
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Closed Loop MRP System

Firm orders from Customers Sister plants Stock replenishment S & OP Forecast of Demand

Master schedule Engineering Design changes MRP Parts Explosion

Rough-cut capacity planning Inventory Records Inv. Transactions Shop Orders Capacity planning Shop-floor control

BOM
Purchase Orders

Vendors

Raw Materials

Operations

Product
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TR 4-6

Comparison of MRP & Order-Point Systems

Attribute Demand Order philosophy Forecast Control concept Objectives Lot sizing Demand pattern Dependent R equirements Based on master schedule Control all items Meet manufacturing needs Discrete Lumpy but predictable MR P Order Point Independent R eplenishment Based on past demand ABC Meet customer needs E OQ R andom Finished goods and spare parts

Types of inventory Work in process and raw materials

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MRP Elements
Inputs
1. Master Schedule 2. Bill of Materials (BOM) 3. Inventory Records

Capacity Planning (feasibility) Planned Order Releases (outputs)

Purchasing (buy) Shop Floor Control (make)
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MRP Inputs
1. Master schedule

2. Product structure file (bill of materials or

BOM)
1. Parts & subassemblies contained in product 2. Sequence of operations

3. Inventory master file 1. Item master information 2. Balances & ordering information
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1. Master Schedule
Quantities derived from S&OP production plan (product groups) [input] Drives MRP process with a schedule of finished products (actual items by week) [output] Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced (infinite capacity planning)
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2. MRP Example of BOM

Top

Short Rail

Leg

Long Rail

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BOM (Product Structure)

Table (End Item) 1 week

Leg Assembly (1) 1 week Short Rails (2) Long Rails (2) 1 week 1 week Legs (4) 1 week

Top (1) 2 weeks

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Indented BOM
Level Code 0 1 2 2 2 1 Component Table (end-item) Leg assembly (1) Short rails (2) Long rails (2) Legs (4) Top(1)

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3. Inventory (item master) File

Permanent information may include:
Description Part number Part name Safety stock Item classification Cost Yield Lead time Group to which item belongs Assemblies in which item is used Shelf life Batch control requirements Substitutes Suppliers and their ratings Unit of measure (SKU)

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Inventory Status File

Changing information includes:
Quantities Ordered Received Issued Allocated Previously allocated that have been issued Dates ordered, received, issued, and allocated Shipping, production, and purchase numbers On-hand balance & Available balance Batch identification (e.g. lot number)
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MRP Example The Alpha Beta Company

BOM
C(3) LT=4

A LT=3

B LT=2

Level (LLC)=0

D(2) LT=2

D(3) LT=2

Level (LLC)=1

Inventory Position
Item On Hand A B C D 10 5 140 200 Scheduled Receipts 0 0 0 250, period 2 Lot Size 1 1 150 250 MPS 100, period 8 200, period 6 ----16-16

MRP Matrices For A & B

Item: A LLC: 0 Lot size: 1 LT: 3 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases Item: B LLC: 0 Lot size: 1 LT: 2 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases PD 1 2 Period 3 4 5 6 7 8 100 0 90 90

10

10

10

10

10

10

10

10

90 PD 1 2 Period 3 4 5 6 200 0 195 195 7 8

195

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Origin of Requirements
At Level Zero: gross requirements come from the master production schedule (MPS) Below level zero: gross requirements come from planned order releases for the next level above. Net requirements are gross requirements plus scheduled receipts minus inventory onhand
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MRP Matrices For C & D

Item: C LLC: 1 Lot size: 150 LT: 4 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases Item: D LLC: 1 Lot size: 250 LT: 2 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases PD 1 2 Period 3 4 5 270 20 130 150 6 7 8

140

140

140

140

140

20

20

20

150 Period 3 4 585 450 115 135 250

PD

2 250 450

5 180 185 65 250

200

200

185

185

185

250

250

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Alpha Beta Planned Order Release Report

Period 1 2 3 4 5 Item C D D B A Quantity 150 250 250 195 90

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Operating an MRP System

Should MRP carry safety stock? How much safety stock should be carried? Issue of safety lead time Danger of informal system driving out the formal system Expansion of MRP to other functions (finance, HRM, etc.) of business

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Operating a Successful MRP System

Accurate Inventory Records Stable master production schedule Realistic master production schedule Good control of engineering change orders (impacts BOM) Good interface with capacity planning (CRP) Reports that are useful
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Elements of Successful MRP Implementation

Allow enough time (18 months minimum) Put materials people in charge of crossfunctional team (not IS or accountants) Train everyone and train them again! Top Management support Accurate records
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Summary
Definition of MRP Systems MRP versus Order-Point Systems MRP Example MRP Elements Operating an MRP System The Successful MRP System

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End of Chapter Sixteen

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