Material Requirement Planning (MRP)

Foreign Trade University
Content
MRP overview
Benefits of MRP
MRP application
Requirements of an effective MRP system
MRP system
The development of MRP
- MRP II – Manufacturing resources planning
- ERP – Enterprise resources planning
An Overview of MRP
MRP is a computer-based information system
designed to handle ordering and scheduling of
dependent-demand inventories, e.g.: raw materials,
component parts, and subassemblies…
Dependent demand vs. independent demand!!!

An Overview of MRP
Dependent demand: demand for a higher-level item.
E.g.: Tires, wheels, engines are demand for
automobiles.
Independent demand: demand for finished products,

which are not components of any items.
E.g.: cars, trucks…
Benefits of MRP
Ability to keep track of material requirements: How
many number of parts, components, and materials
needed to produce each end item and when
A means of allocating production time
Low level of in-process inventories…
MRP application
Apply for the typical manufacturing or assembly type
of operation, where a number of products are made in
batches using the same productive equipments
Industry type Examples Expected
benefits
Assemble-to-stock Combines multiple component parts into a finished High
product, which is then stocked in inventory to satisfy
customer demand. E.g.: watches, tools, appliances
Fabricate-to-stock Items are manufactured by machine rather than Low
assembled from parts. These are standard stock items
carried in anticipation of customer demand. E.g.: piston
rings, electrical switches…
Assemble-to-order A final assembly is made from standard options that High
customer chooses. E.g.: trucks, generators, motors
Fabricate-to-order Items are manufactured by machine to customer order. Low
These are generally industrial orders. E.g.: bearings,
gears, fasteners
Manufacturing-to- Items are fabricated or assembled completely to High
order customer specification. E.g.: turbine generators, heavy
machine tools
Process Includes industries such as foundries, rubber and Medium
plastics, specialty paper, chemicals paint, drug, food
processors
Requirements of An Effective
MRP system
A computer and necessary software programs;
Accurate and up-to-date master schedules, bills of
materials and inventory records;
Integrity of file data.
MRP System
Includes 3 major sources:
Master production schedule
Bill of materials
Inventory records
 Answer 3 questions:
What is needed?
How much is needed?
When is it needed?
MRP System
MRP Input Master MRP Processing MRP Output
Changes
Orders
Production
Forecast Schedule Planned-order
schedules
Order releases
Bill of MRP
Exception reports
Design Materials Computer
Programs
change
Planning reports
Báo cáo đơn

Performance-
Inventory hàng
controlthực hiện
reports
Receipts Records
Withdrawals Các nghiệp vụ
Inventory
dự trữ
transactions
MRP Input
Includes:
- Master Production Schedule
- Bill of Materials
- Inventory Records
MRP Input
Master Production Schedule
Are made by:
- Demand from the known customers
- Forecast demand
=>Questions:
- Which end items are to be produced;
- When these are needed;
- And in what quantities?
MRP Input
Master Production Schedule
The schedule indicates that 100 units of X will be
needed at the start of week 8
X 1 2 3 4 5 6 7 8
Quantity 100
(units)
MRP Input
Bill of Materials (BOM)
- Called as Production Structure Tree
- Contains a list of all assemblies, subassemblies, parts and
raw materials that are needed to produce one unit of
finished product.
Level 0 X
Level 1 B(2) C(1)
Level 2 E(4) D(3) G(2) F(2)
Level 3 H (4) I (5)

MRP Input
Bill of Materials
Example: Determine the quantities of B, C, D, E, F, G, H

and I needed to assemble one unit of X
Answer:
MRP Input
Inventory Records
Information on the status of each item by time period
- Gross requirements, scheduled receipts, expected
amount on hand;
- Details for each item: supplier, lead time, lot size;
- Changes due to stock receipts and withdrawals,
canceled orders…
=> Must be accurate and up-dated
Inventory Status Record for an Item in Inventory
Part No. Description Lead time Std. Cost Safety Stock
Item master data

Order quantity Class Setup Cycle Last year's usage
segment
Scrap allowance Cutting data Pointers Etc.

Allocated Control balance Period 1 2 3 4 5 6 7 8 Totals
Gross Requirements
Inventory status
Scheduled receipts
segment
Projected available
balance
Planned order
releases
Order details
Subsidiary data
segment Pending action
Counters
Keeping track
MRP Processing
MRP Computer Program
Steps to follow:
- Specify end item requirement by the master schedule
- Explode them into time-phased requirement for
assemblies, parts, and raw materials using the BOM
offset by lead times;
- Determine net requirements in period t
MRP Processing
Step 1: specify end item requirement
X 1 2 3 4 5 6 7 8
Quantity 100
(units)
Step 2: Time-phased requirement
Item X B C D E F G H I
Wee 1 3 2 3 2 4 2 1 1
k
MRP Processing
Step 2: Assembly Time chart
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Procurement
of H
Fabrication of D
Procurement
of I Subassembly B
Final
Procurement of E
assembly
X
Procurement of G
Subassembly C
Fabrication of F
MRP Processing
Step 3: Determine net requirements in period
t:
Net Gross Projected
Safety
requirements = requirements - inventory in +
stock
in period t in period t period t
MRP Processing
Step 3: Determine net requirements in period t:
- Gross requirement: total expected demand for an item
or raw material in a time period
- Projected inventory: scheduled receipts at the
beginning of a period plus available inventory from last
period.
- Net requirements: actual amount needed in each time
period.
- Planned-order releases: planned amount to order in
each time period
- Planned-order receipts: quantity expected to be
received by the beginning of the period in which it is
shown
MRP Output
Primary reports:
Planned orders: amount and timing of future orders
Order releases: authorization for executing planned
orders
Changes: in date, quantity, cancellation, etc….
Secondary reports:
Performance-control reports
Planning reports
Exception reports
Example
A firm that produces wood shutters and bookcases has received
two orders for shutters: one for 100 shutters and one for 150
shutters. The 100-unit order is due for delivery at the start of week
4 of the current schedule, and the 150-unit order is due for delivery
at the start of week 8. Each shutter consists of two frames and four
slatted wood sections, and its assembly takes 1 week. The wood
sections are made by the firm, and fabrication takes 1 week. The
frames are ordered, and lead time is 2 weeks. There is a scheduled
receipt of 70 wood sections in week 1. Determine the size and
timing of planned-order released necessary to meet delivery
requirements under each of these conditions:
1. Lot-for-lot ordering
2. Lot-size ordering with a lot size of 320 units for frames and 70 units
for wood sections.
Development of MRP
Manufacturing resources planning (MRP II):
planning production resources, that involves other
functional areas of the firm in the planning process.
Enterprise resource planning (ERP): integration of

standardized record- keeping, that allows different
areas of an organization sharing information.
Exercise. An organisation produces X, which includes 3 parts
A, B, and C and in particular quantity: 2 A, 1 B and 1 C.
A is made from 1F B from 1D, 2E, 1G
C from 2D and 2H D from 1F
The assembly time for each component and part is as followed:
Unit X A B C D E F G H
Time(weeks) 1 1 2 1 2 1 3 2 3
a. Build up the master production schedule for X (required for
delivery at the beginning of week 9)
b. Make a production structure tree,
c. Draw an assembly time chart
d. The organisation received an order of 300 X at the beginning
of week 9, determine the net requirement of F and its
planned-order released.

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Foreign Trade University

Dependent demand vs. independent demand!!!

Independent demand: demand for finished products,

Báo cáo đơn

Level 1 B(2) C(1)

Level 2 E(4) D(3) G(2) F(2)

Level 3 H (4) I (5)

Example: Determine the quantities of B, C, D, E, F, G, H

Item master data

Scrap allowance Cutting data Pointers Etc.

Enterprise resource planning (ERP): integration of

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