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Material Requirements
Planning
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Objectives

Material Requirements Planning (MRP)

MRP Inputs
BOM, Inventory Records, MPS
Developing MPS
MRP Logic
MRP Example
MRPII
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Dependent Demands

Dependent demands are generated from

production plans of parent items

Independent demands:
Finished products (end items)
Chair
Dependent demands:
Subassemblies
Seat (1) Leg (4) Components
Raw materials

Seat frame (1) Seat cushion (1)

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Material Requirements Planning (MRP)

MRP is planning for items with dependent

demands
What, when and how much to produce or
purchase?
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Aggregate
Operations
Customer Plan Demand
Orders Forecasts

Engineering Master Production

Schedule (MPS) Inventory
Design
Transactions
Changes

Material
Bill of Requirements Inventory
Materials Planning Records
(BOM) (MRP)

Primary Outputs Secondary Outputs

Planned Orders Exception Reports
Various Other Reports
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Bill of Materials (BOM)

BOM has information about product structure

Parentchild relationships
e.g.) Item A is a parent item of item B and C.
Item B and C are child items of item A.
Usage quantities
e.g.) Item A is made of 1 unit of B and 4 units of C

B(1) C(4)

D(1) E(1)
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Bill of Materials (BOM) (Contd)

Low level code

Lowest level at which the item appears, starting from
level 0
e.g.) Item A is at level 0, item B and C are at level 1,
and item D and E are at level 2

B(1) C(4)

D(1) E(1)
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Bill of Materials (BOM) (Contd)

MRP plans for items one at a time level by level

according to their low level codes
What will happen if item D is planned before item B?

B(1) C(4)

D(1) E(1)
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Inventory Records

Inventory records are MRP-related information for

each item
Item number/description
Lot sizing method
How to determine order quantity (or lot size)
Leadtime
How long does it take to produce or procure the item?
Safety stock requirement (SS)
Amount of inventory that needs to be held for just in case
On-hand inventory (OH)
Amount of inventory that is in stock
Scheduled receipts (SR)
Orders that have been placed but not yet received
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Lot Sizing Methods

Lot-for-lot (L4L)
Order as much as needed
Fixed order quantity (FOQ)
Order a multiple of a fixed quantity
E.g.) FOQ (100): Order a multiple of 100 units
Periodic order quantity (POQ)
Order for requirements over a fixed number of periods
E.g.) POQ (2): Order for requirements over two weeks
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Master Production Schedule (MPS)

MPS is a master plan for end items

How many units of end items to produce in
each period?
Two inputs for developing MPS
Demand forecasts
Demand forecasts can be generated from
disaggregation of aggregate operations plan
Customer orders
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Disaggregation of Aggregate
Operations Plan

April May

1 2 3 4 5 6 7 8
Aggregate
Operations plan
100 120
for a family of
chairs
Ladder-back
chair 10 10 10 10 12 12 12 12

Kitchen chair 10 10 10 10 12 12 12 12

Desk chair 5 5 5 5 6 6 6 6
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Developing MPS

MPS is developed for each end item by using the

following steps:
1. Determine projected requirements
2. Calculate projected available balance (PAB)
3. Determine MPS quantity and MPS start
MPS quantity: How much to produce
MPS start: When to start the production
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Projected Requirements

Projected requirement for an end item in period t

= Maximum of demand forecast for period t and
customer orders due in period t

Example 1: For an end item, suppose that

Demand forecast for period t is 100 units
Customer orders due in period t are 110 units
How many units do we need in period t?
Max{100, 110} = 110 units
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Projected Requirements (Contd)

Example 2: For an end item, suppose that

Demand forecast for period t is 100 units
Customer orders due in period t are 90 units
How many units do we need in period t?
Max{100, 90} = 100

We have received 90 units of customer orders so far,

but we expect more customer orders
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Projected Available Balance in MPS

PAB(0) = Initial available inventory

= OH SS

PAB(t) = Projected available inventory balance

at the end of period t
= PAB(t-1) Available
+ Scheduled receipts (SR) in period t quantity
+ MPS quantity in period t in period t
Projected requirements in period t
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Projected Available Balance in MPS

SR(t) MPS Qty(t)

PAB(t-1) Period t PAB(t)

Proj Req(t)
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Determining MPS Quantity and MPS

Start
If PAB(t) is negative, we need to schedule
production for period t.
MPS quantity (due in the beginning of period t)
is determined from lot sizing method
MPS start is determined from leadtime.
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MPS Example
End item: Product A Lot sizing method: FOQ (100)
Leadtime: 1 week
OH = 75; SS = 20
Week 1 2 3 4 5 6 7 8
Demand
30 30 30 30 35 35 35 35
forecasts
Customer
38 27 24 8 10
orders
Scheduled
100
receipts

PAB 55 117 87 57 27 92 57 22 87

MPS quantity 100 100

MPS start 100 100

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MRP Logic

MRP plans for items one at a time level by level

according to their low level codes by using the
following steps:
1. Determine gross requirements (GR) from parent
items
2. Calculate projected available balance (PAB)
3. Determine planned receipt (PR) and planned
order release (POR)
PR: How much to produce or purchase
POR: When to start the order
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Gross Requirements (GR)

GR of an item are generated from production plans
of its parent items
Example) A

B(2) C(1)

D(4) E(1)
Suppose we plan to produce 10 units of end item A.
What is GR of item B? 20 units
Assume that item B uses the L4L lot sizing method and has
no on-hand inventory or safety stock requirement.
What is GR of item D? 80 units
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Projected Available Balance in MRP

PAB(0) = Initial available inventory

= OH SS

PAB(t) = Projected available inventory balance

at the end of period t
= PAB(t-1) + SR(t) + PR(t) GR(t)

Available quantity in period t

where SR(t) = scheduled receipts in period t

PR(t) = planned receipts in period t
GR(t) = gross requirements in period t
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Projected Available Balance in MRP

SR(t) PR(t)

PAB(t-1) Period t PAB(t)

GR(t)
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Determining PR and POR

If PAB(t) is negative, we need to schedule

production/purchase for period t.
Planned receipt (PR) (due in the beginning of period t)
is determined from lot sizing method
Planned order release (POR) is determined from
leadtime
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MRP Example

Inventory Records BOM

Item LT Lot Sizing SS OH SR

B 1 L4L 0 25 -
A
C 1 POQ (3) 5 10 -
D 2 FOQ (50) 0 20 200 in B(1)
week 2

C(2) C(1) D(2)

MPS Start
Week 1 2 3 4 5 6 7
Item A 0 0 100 0 0 100 0
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Week 1 2 3 4 5 6 7
A MPS
Item A 100 100
Start

Item B GR 100 100

B(1) LT=1 SR
L4L PAB 25 25 25 0 0 0 0 0
SS=0 PR 75 100
OH=25 POR 75 100
C(2) C(1) D(2)
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Week 1 2 3 4 5 6 7
A MPS
Item A 100 100
Start

Item B POR 75 100

B(1)
Item C GR 75 200 100 200
LT=1 SR
C(2) C(1) D(2) POQ (3) PAB 5 5 200 0 0 200 0 0
SS=5 PR 270 300
OH=10 POR 270 300

(Gross requirements for week 2, 3, and 4) SR(2) PAB(1)

= (75 + 200 + 0) 0 5 = 270
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Week 1 2 3 4 5 6 7
A
Item B POR 75 100

Item D GR 150 200

B(1) LT=2 SR 200
FOQ (50) PAB 20 20 70 70 70 20 20 20
SS=0 PR 150
OH=20 POR 150
C(2) C(1) D(2)
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Manufacturing Resource Planning

(MRPII)

MRPII is an expansion of MRP, including:

Capacity requirements planning
Calculate capacity requirements and compare with
available capacity
Various other planning functions
Sales and operations planning, sales analysis
Execution functions
Purchasing, production control and costing,
inventory management, sales order management,
accounts payable/receivable
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MRPII (Contd)

Sales and Operations Planning

Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning

No
Realistic? Feedback
Feedback
Yes
Execute
- capacity plans
- material plans