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Supply Chain Management and

Operations Management

SCMG527

Chapter 21 – Material Requirements Planning

 Understanding Material Requirements Planning

Material requirements planning (MRP): the logic that ties

production functions together from a material planning and
control view.
• MRP has been installed almost universally in
manufacturing firms.
• Even small ones.

A logical, easily understood approach to the problem of

managing the parts, components, and materials needed to
produce end items.
• How much of each part to obtain?
• When to order or produce the parts?
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 Dependent Demand
Dependent demand drives the MRP system.
Dependent demand is caused by the demand for a higher–
level item.
• Cars need tires.
• Planes need wings.
Determining the number of dependent demand items needed
is essentially a straightforward multiplication process.
• If one Part A takes five parts of B to make it, then five parts
of A require 25 parts of B.

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 Where MRP Can Be Used
MRP is most valuable in industries where a number of
products are made in batches using the same productive
equipment.
MRP is most valuable to companies involved in assembly
operations and least valuable to those in fabrication.
MRP does not work well in companies that produce a low
number of units annually.
• Better handled using project management.

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 Master Production Scheduling
The master schedule deals with end items and is a major
input to the MRP process.
All production systems have limited capacity and limited
resources.
• The aggregate plan provides the general range of
operation; the master scheduler must specify exactly what
is to be produced.
To determine an acceptable feasible schedule to be released
to the shop, trial master production schedules are tested
using the MRP program.

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 Duties of Master Scheduler
• Include all demands.
• Never lose sight of the aggregate plan.
• Be involved with customer order promising.
• Be visible to all levels of management.
• Objectively trade off manufacturing, marketing, and
engineering conflicts.
• Identify and communicate all problems.

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 The Aggregate Plan and the Master Production
Schedule for Mattresses

Aggregate production plan shows overall quantities to

produce.
• Does not specify type.
Master production schedule shows quantities of each type,
with information about the production time frame.

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 Master Production Schedule
Master production schedule (MPS): the time–phased plan
specifying how many and when the firm plans to build each
end item.
• Aggregate plan specifies production on a monthly or
quarterly basis.
• MSP identifies exact models on a period–by–period bases.
• Period is usually weekly.
Further down the disaggregation process is the material
requirements (MRP) program.
MRP calculates and schedules all raw materials, parts, and
supplies needed to make the mattress specified by the MPS.

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 Time Fences
Flexibility within a master production schedule depends on
several factors.
• Production lead time.
• Commitment of parts and components to an end item.
• Relationship between customer and vendor.
• Amount of excess capacity.
• How willing management is to make changes.
Time fences maintain a controlled flow.
Time fences: periods of time having some specified level of
opportunity for customer to make changes.

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 Master Production Schedule Time Fences

• Frozen: Changes to production plan not allowed.

• Slushy: Limited changes to production plan allowed.
• Liquid: Any changes to production plan allowed.

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 Available to Promise
Some firms use a feature known as available to promise for
items that are master scheduled.
Identifies the difference between the number of units
currently included in the master schedule and firm customer
orders.
• Master schedule shows production of 100 items.
• Of those, 65 have already been sold.
• The remaining 35 (100 − 65) are available to promise to
another customer.
This can be a powerful tool for coordinating sales and
production activities.

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 Material Requirements Planning System
Structure
• The MPS states the number of items to be produced
during specific time periods.
• A bill–of–materials file identifies the specific materials
used to make each item and the correct quantities of each.
• The inventory records file contains data such as the
number of units on hand and on order.
• MRP expands the production schedule into a detailed
order scheduling plan for the entire production sequence.

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 Overall View of the Inputs to and Reports from
an MRP Program

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 Demand for Products
Product demand for end items comes primarily from two main
sources:
1. Customers: specific orders placed by either external or internal
customers.
2. Aggregate production plan: the firm’s strategy for meeting
demand in the future, implemented through the master
production schedule (MPS).
Customers also order specific parts and components either as
spares or for service and repair.
• These demands are not usually part of the master production
schedule.
• They are added in MRP as a gross requirement for that part or
component.
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 Bill–of–Materials (BOM)
The BOM shows how the product is put together.
• Contains the complete product description, listing the
materials, parts, and components along with the sequence
in which the product is created.
• Often called the product structure file or product tree
because it shows how a product is put together.
• Modular bill–of–materials is a buildable item that can be
produced and stocked as a subassembly.
• Super bill–of–materials includes items with fractional
options.

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 Bill–of–Materials (Product Structure Tree) for
Product A

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 Parts List in an Indented Format and in a Single–
Level List

Indented Parts List Single–Level Parts List

A A
B(2)
B(2) C(3)
D(1) B
E(4) D(1)
C(3) E(4)
F(2) C
G(5) F(2)
H(4) G(5)
H(4)

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 Low–Level Coding
Level 0 in the independent demand item.
Lower levels (higher numbers) refer to components and raw
materials.
In low–level coding, all identical items are placed at the same
level of the bill–of–material.
• This makes it a simple matter for the computer to scan
across each level and summarize the number of units of
each item required.
• Another way of looking at low level code for an item is the
lowest level at which an item appears in the bill–of–
materials.

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 Product L Hierarchy in (A) Expanded to the
Lowest Level of Each Item in (B)

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 The Inventory Status Record for an Item in
Inventory

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 MRP Computer Program 1

1. The requirements for end items are retrieved from the

master schedule.
• These are referred to as “gross requirements” by the M R
P program.
2. On-hand balance and schedule of orders are used to
calculate the “net requirement”.
3. Net requirements data are used to calculate when orders
should be received to meet these requirements.
4. Planned order releases are generated by offsetting to
allow for lead time.

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 MRP Computer Program 2

5. Move to level 1 items.

6. Gross requirements for each level 1 item are calculated
from the planned–order release schedule for the parents
of each level 1 item.
7. Net requirements, planned–order receipts, and planned–
order releases are calculated as described in steps 2–4.
8. Repeat for all items in bill–of–materials.

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 An Example Using MRP
Ampere, Inc., produces a line of electric meters installed in
residential buildings.
Meters are of two basic types for different voltage and
amperage ranges.
• Some subassemblies are sold separately for repair or for
changeovers.
The problem is to determine a production schedule to identify
each item, the period it is needed, and the appropriate
quantities.
The schedule is then checked for feasibility, and the
schedule is modified if necessary.

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 Future Requirements for Meters A and B and
Subassembly D Stemming from Specific Customer
Orders and from Forecasts

Meter A Meter B Subassembly D

Month Known Forecast Known Forecast Known Forecast
3 1,000 250 410 60 200 70
4 600 250 300 60 180 70
5 300 250 500 60 250 70

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 A Master Schedule to Satisfy Demand
Requirements as Specified in Prior Slide

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 Product Structure for Meters A and B

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 Number of Units on–Hand and Lead Time Data
That Would Appear on the Inventory Record File

Item On–Hand Inventory Lead Time (Weeks) Safety Stock On–Order

A 50 2 0
B 60 2 0 10 (Week 5)
C 40 1 5
D 200 1 20 100 (Week 4)

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 MRP Planning Schedule for Meters A and B and
Subassemblies C and D

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 Lot Sizing in MRP Systems
Determination of lot sizes in an MRP system is a complicated
and difficult problem.
Lot sizes: the part quantities issued in the planned order
receipt and planned order release sections of an MRP
schedule.

1. Lot–for–lot (L4L).
2. Economic order quantity (EOQ).
3. Least total cost (LTC).
4. Least unit cost (LUC).

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