MATERIAL REQUIREMENTS PLANNING (MRP)
Producing a product made of
multiple components requires significant coordination to ensure that component
parts are available when they are required for production. This segment
examines how MRP can accomplish this coordination.
Master Production Schedule
Material Requirements Planning
Links for production planning and control
Aggregate Plan into a Production and Ordering Schedule
Plan (3-12 months ahead)
Production Schedule (1-3 months)
Requirements Plan (0-3 months)
PRODUCTION SCHEDULE (MPS)
- A detailed plan that
states how many END ITEMS (the final product sold to the customer) will be
available for sale or distribution during specific periods
- Short time frame: 1-3 months
Purposes of the Master
- to set due dates for the availability of end
- to provide information regarding resources and
materials required to support the aggregate plan
- as an input to Materials Requirements Planning,
which will set specific production schedules for parts and components used
in end items
What the Master
Production Schedule is NOT:
- a sales forecast (MPS summarizes production to
meet sales forecasts)
- a manufacturing schedule (MPS tells when end items
are available for sale, but not when the end items or their component
parts will be manufactured)
Inputs To Mps
- Market requirements
- Production Plan from Aggregate Planning
- Resources available
- Quantities of individual items must equal aggregate
quantities from the Production Plan
- Demand which must be met
An MPS showing end items
available every month (or period) that is feasible with respect to demand and
At this point we know when
we need units available so we can plan when to produce or order using MRP.
Requirements Planning (MRP)
A computerized system for managing dependent-demand
inventory, scheduling replenishment orders, and meeting demand for end items as
given in the Master Production Schedule.
characteristics of MRP:
- MRP derives demand for components,
subassemblies, materials, etc., from demand for and production schedules
of parent items.
- MRP offsets replenishment orders (purchase
orders or production schedules) relative to the date when replenishment is
Needed for MRP
Obtained from MRP
- Demand for all products.
- Lead times for all finished goods, components,
parts and raw materials
- Lot sizing policies for all parts
- Opening inventory levels
- Safety stock requirements
- Any orders previously placed but which haven't
- Planned orders: replenishment orders to be
released at a future time
- Order release notice: notices to release
- Action notices: notices to expedite,
de-expedite, or cancel orders, or to change order quantities or due
- Priority reports: information regarding which
orders should be given priority
- Inventory status information
- Performance reports such as inactive items,
actual lead times, late orders, etc.
1. Master Production Schedule
- Product Structure
- Inventory Levels
MRP Matrix – download a sample MRP Matrix here and print
two up to take to class.
Sizing Choices in MRP
Determining the lot size (order quantity or production
quantity) of an item
Static lot sizing
- A decision rule that orders the same quantity
each time an order is placed.
- Tend to generate higher average on-hand inventory
because they create inventory remnants.
- Can provide extra safety stock.
Dynamic lot sizing
- A decision rule that changes the order quantity
with each order, typically so that each order is just large enough to
prevent shortages over a specified time period.
- Tend to cause instability by tying lot-size to
- Lower-level components may not be able to
respond sufficiently fast to changes in requirements.
Static Lot-sizing Rules
1. Fixed order quantity (FOQ)
- Order (or produce) a fixed quantity, or a
multiple of that fixed quantity.
2. Economic Order Quantity (EOQ)
- Order (or produce) the economic order quantity,
plus any additional items needed to replenish safety stock if it has
fallen below its desired level.
- Yields minimum total setup/ordering plus holding
- Assumes relatively constant demand.
Dynamic Lot-sizing Rules
1. Lot-for-Lot (L4L)
- Order (or produce) exactly the quantity required
in each period to satisfy gross requirements and to maintain safety stock
at its required level.
- Simple to use, and agrees with Just-In-Time
philosophy of ordering/producing only when required.
- Lot size can be modified easily for purchase
discounts or restrictions, scrap allowances, process constraints, etc.
- Minimizes on-hand inventory, but maximizes
number of orders placed (so can be expensive if setup/ordering costs are
2. Periodic Order Quantity (POQ)
- Order/produce a quantity equal to the gross
requirements for P periods minus any items in on-hand
inventory plus any additional items needed to replenish
safety stock if it has fallen below its desired level.
- Restores safety stock and covers exactly P
periods of gross requirements.
- Reduces on-hand inventory by attempting to match
the quantity ordered to the quantity required.
Completing MRP Tables
The purpose of MRP is to schedule orders
for end items and the components
of those end items. We wish to determine when to release orders
and how much to order.
Begin with the end items.
Complete one table at a time.
- Schedule the gross requirements, GR.
- Enter records for any scheduled receipts, SR.
- Consider GR, SR and inventory, I, to determine
timing and size of orders we will plan to receive, PR. These are orders
which we must receive to meet demand.
PRt = It-1 +
SRt - GRt - It
- Use the lead time to schedule the planned order
releases, POR, so that the orders are received when they are needed.
Time of POR = Time of PR - L
- A POR for an end item in week t becomes a GR in
week t for every component part of the end item.
Schedule the components. If
a component occurs at more than one level it is scheduled at the deepest level so
that you will know all demand for parents of the component before you try to
schedule the component.
Level 1 components:
The POR's for end items are
scheduled as GR's for level 1 components. Any spare parts orders are scheduled
as GR's also.
- Complete the table as discussed in step 1.
Repeat the process
for all components.
For each component the
gross requirements come from planned order releases for all direct parents of
the component and from any orders for spare parts.
The final result will be
planned orders (quantity and timing) for end products and all of their
component which must be made in order to meet demand.
of Materials Requirements Planning Systems
environments for MRP:
- batch manufacturing environment
- stable demand
- limited number of products
- large number of bill-of-materials levels
- large lot sizes
which are less favourable for MRP
- many customized products
- small production volumes
- small number of bill-of-materials levels
- small batch sizes
- demand pulls parts and components through the
Types of MRP Systems
MRP system that provides feedback to other stages of the production
plan, such as the aggregate production plan, capacity plan, and Master
Resource Planning (MRP II):
A planning system that uses all outputs of a MRP system to
integrate production, marketing, and financial plans.
Resource Planning (DRP):
A time-phased stock replenishment technique for distribution
networks based on MRP procedures and logic.
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