Material Requirment Planning

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AN OPERATION MANAGEMENT

TECHNIQUE.



� American production and control

society(APICS) defines;

� MRP constitutes a set of techniques that use

BOM, Inventory data and MPS to calculaterequirement for materials.

� It is the system of calculating the

needs/requirments of the input material at

different point of time based on the plan orschedule for production of the finished

item/good/products.



� It is the computer based system that takes

MPS to explode it into required amount of

basic raw materials, components/parts,

subassemblies and assemblies required ineach of the planning horizon, and then

reducing these material requirments to take

into account that ar in inventory or on order

and finally developing a schedule of order forpurchased materials and produced

components over the planning horizon.



� Low prices of the product being

manufactured

�Continuity of supply so that there are no

production halts� Low payable cost

�Consistency in quality of products

� Low cost of acquisition and possession

�High inventory turnover

�Development of good personnel records

�Good supplier relation



Aggregate

Production

Plan

MarketingCustomer

Demand

EngineeringDesign

Completion

ManagementReturn on

Investment

Capital

HumanResourcesManpower

Planning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacity

Inventory



MRP SYSTEM

INDEPENDENT

DEMAND SALESFORECAST

PRODUCT

STRUCTURE

OR LIST OF

COMPONENTSREQUIRED

MASTER

PRODUCTION

SCHEDULE

EXTERNAL ORDER

FOR

COMPONENTS

INVENTORY

RECORD



� LEAD TIME: Time need in completing the job from stage to finalstage.� MANUFACTURING LEAD TIME: To process the part through the sequence

of m/cs or work stations specified on the route sheet.

� ORDERING LEAD TIME: time needed from start of purchasing process tothe receipt of item/goods from the supplier. This time is dependent

upon the time required by the suppliers to deliver the items after thereceipt of order.

� DATA FILES:FIRST FILE: BOM( Mat. Record, tool requirement and lead time)

SECOND FILE: ENGINEERING DATA FILE(machine time routing and labourrequirement).

THIRD FILE: INVENTORY TRANSECTION FILE( running balances of partsand subassemblies).

FOURTH FILE: OPEN ORDER FILE(order placed but not received orcompleted).

FIFTH FILE: Master Production Schedule(indicates the number andtiming of all final product to be produced over the planning horizon).



� Capacity Requirement Planning:� To reconcile the MPS to labor & machine capacities of production

departments over the planning horizon.

� Safety stock:� Qtn of mat held as inventory that is dedicated to b used in emergency

shortages, which may be due to uncertain demand or lead times.

� Independent demand:� Independent of the demands for other materials.

� Dependent demand:� Demand of raw material, parts or other lower level component that

depend on the demand for the final product into which the componentgoes.

� Gross requirement:� Total requirement for a particular material, without considering any

availability of the material in inventory or schedule receipts.

� Net requirement:� Gross requirement ² available material



Inventory

ro ess

st e

e n

y e

N ber

& V l eOther

R w M teri l

WI

Finishe

Goo s

In e en en

t

e en ent

A Ite s

B Ite s

C Ite s

M inten n

e

e en ent

O er tin



PowerPoint presentation to accompanyOperations Management, 6E (Heizer & Render)

© 2001 by Prentice Hall, Inc. Upper Saddle River, N.J.0745814-10

ItemMaterials With

Independent DemandMaterials With

Dependent Demand

Demand

Source Company Customers Parent Items

MaterialType

Finished Goods WIP & Raw Materials

Method of

EstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod

EOQ & ROP MRP



Effective use of dependent demand

inventory models requires that the

operations manager know the:

� master production schedule

� specifications or bills-of-material

� inventory availability

� purchase orders outstanding

� lead times



Production Plan

Execute MaterialPlans

Master ProductionSchedule

MaterialRequirements

Plan

CapacityRequirements

Plan

Execute CapacityPlans

Realistic??o

Yes



Independent

product

demand

MPS

Product

structure, BOM

Inventory

transaction

Inventory

recordsMRP

Inventory

order

action

Priority

integrity

Priority

planning

Performance

control

Planned

order

schedules

Capacity

requirement

planning



� Projected Requirements:� The MPS gives particulars about demands of the final

assembly for the periods in the planning horizon.The projected requirements of the subassemblies which

are in the next immediate level just below the final

product can be calculated only after completing theMRP calculations for the final product.

� Stock on hand:� It is level of inventory at the end of each period.

� Planned order release:

� It is the plan to initiate the purchase or manufactureof materials so that they will be received on scheduleafter the lead time offset.

� Economic order quantity:� Is calculated based on the set up cost and carrying

cost.



� To demonstrate the working of MRP to

manufacture the fire extinguisher. The MPS

to manufacture the fire extinguisher is given

in table1. The details of BOM,EOQ & stock on

hand for the final product and subassemblies

are shown in table 2.

Table 1: Master Production Schedule

Week 1 2 3 4 5 6 7 8

Demand 100 150 140 200 140 300



Parts

required

Order

quantity

o. of units Lead time Stock on

hand

Fire

extinguisher

300 1 1 150

Cylinder 450 1 2 350Valve

assemblies

400 1 2 325

Valve 350 1 1 150

Valve

housing

450 1 1 350

Handle bars 700 2 1 650

Complete MRP plan and show what quantities of orders must be

released and when they must be released in order to satisfy the

MPS.



� The projected requirement for the fire

extinguisher are same as the MPS which are

shown in table 2.

� The projected requirements of the cylinderand the valve assembly are same as the

planned order releases of the fire

extinguisher in various weeks, since each fire

extinguisher requires two units of handle bar.� The projected requirements of the valve

housing are same as the planned order

release values of the valve assembly.



period 0 1 2 3 4 5 6 7 8

Projected

requirement

100 150 140 200 140 300

receipts 300 300 300

Stock on hand 150 50 50 200 60 160 20 20 20

Shortage -100 -140 -280

Planned order release 300 300 300

EOQ=300 LT=1week

Ta le: 1 Calculations for fire extinguisher



EOQ= 450 LT=2WEEKS

Period 0 1 2 3 4 5 6 7 8

Projected

requirement

300 300 300

receipts 450 450

Stock on hand 350 350 50 50 200 200 200 350 350

Shortage -250 -100

Planned order release 450 450

Ta le 2: Calculations for cylinder



Period 0 1 2 3 4 5 6 7 8

Projected

requirement

300 300 300

receipts 400 400

Stock on hand 325 325 25 25 125 125 125 225 225

Shortage -275 -175

Planned order release 400 400

EOQ = 400 LT = 1 WEEK

Ta le 3: Calculations for valve assem ly



EOQ = 350 LT = 1 WEEK

period 0 1 2 3 4 5 6 7 8

Projected

requirement

400 400

Receipts 350 350

Stock on hand 150 150 150 100 100 100 50 50 50

shortage -250 -300

Planned order

release

350 350

Ta le 4: Calculations for valve



period 0 1 2 3 4 5 6 7 8

Projected

requirement

400 400

Receipts 450

Stock on hand 350 350 350 400 400 400 0 0 0

shortage -50

Planned orderrelease

450

EOQ = 450 LT = 1WEEK

Ta le: 5 Calculations for valve housing



EOQ = 700 LT = 1 week

Period 0 1 2 3 4 5 6 7 8

Projected

requirement

600 600 600

Reciepts 700 700

Stock

On

hand

650 650 50 50 150 150 150 250 250

shortage

Planned

Orderrelease

700 700

MRP calculations for handle ar

Material Requirment Planning

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