What is MRP?• Computerized Inventory Control

• Production Planning System

• Management Information System

• Manufacturing Control System

When to use MRP

• Job Shop Production

• Complex Products

• Assemble-to-Order Environments

• Discrete and Dependent Demand Items

What can MRP do?

• Reduce Inventory Levels

• Reduce Component Shortages

• Improve Shipping Performance

• Improve Customer Service

• Improve Productivity

• Simplified and Accurate Scheduling

• Reduce Purchasing Cost

• Improve Production Schedules

• Reduce Manufacturing Cost

• Reduce Lead Times• Less Scrap and Rework• Higher Production

Quality

What can MRP do?• Improve

Communication• Improve Plant

Efficiency• Reduce Freight Cost• Reduction in Excess

Inventory

• Reduce Overtime• Improve Supply

Schedules• Improve Calculation of

Material Requirements• Improve Competitive

Position

Three Basic Steps of MRP

• Identifying Requirements• Running MRP – Creating the

Suggestions• Firming the Suggestions

Step 1: Identifying the Requirements

• Quantity on Hand• Quantity on Open Purchase Order• Quantity in/or Planned for

Manufacturing• Quantity Committed to Existing Orders• Quantity Forecasted

MRP 8

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TimeLT LT

R Time LT

R TimeLT

Order point system with dependent demand

Step 2: Running MRP – Creating the Suggestions

• Critical Items• Expedite Items• Delay Items

Step 3: Firming the Suggestions

• Manufacturing Orders• Purchasing Orders• Various Reports

Overview of the MRP SystemProduct

Structure File

Master Production Schedule

Inventory Master File

Material Requirements

Planning

Manufacturing Orders

Purchase Orders

Various Reports

MRP Inputs• Product Structure File• Master Production Schedule• Inventory Master File

Product Structure File

• The Product Structure File describes each parent-component relationship, using the following information:– Part number for the parent item– Part number for the component– Quantity of the component used in the parent item

• Bill of Materials

Master Production Schedule

• Schedule of Finished Products• Represents Production, not Demand• Combination of Customer Orders and

Demand Forecasts• What Needs to be Produced

Inventory Master File• On-Hand Quantities• On-Order Quantities• Lot Sizes• Safety Stock• Lead Time• Past-Usage Figures

MRP Outputs• Manufacturing Orders• Purchasing Orders• Various Reports

MRP Process• Schedules the Production of all items using

an MRP Matrix

Item: Low-Level Code:

Lot Size: Lead Time: PD 1 2 3 4 5Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirements

Planned Order Receipts

Planned Order Releases

MRP Matrix

Terms Defined• Item – name or number for the item being

scheduled• Low-Level Code – the lowest level of the item on

the product structure file• Lot Size – order multiples of quantity• Lead Time – the time from when an order is

placed to when it is received• PD – Past Due Time Bucket, orders behind

schedule

Terms Defined

• Gross Requirements – demand for an item by time period

• Scheduled Receipts – material already ordered• Projected on Hand – expected ending inventory• Net Requirements – number of items to be

provided and when• Planned Order Receipts – net requirements

adjusted for lot size• Planned Order Releases – planned order receipts

offset for lead times

Lot sizing techniques used in MRP systems

• Lot-for-lot (L4L) – most used

• Economic order quantity (EOQ)

• Period order quantity (POQ)

MRP 21

Lot-for-lot (L4L) example

(Assume Ø LT)

The L4L technique:

Minimizes carrying costs

Is certainly the best method for- highly discontinuous demand- expensive purchased items

Period 1 2 3 4 5 6 7 8 9 Total

Net rqmts. 35 10 40 20 5 10 30 150

Planned order 35 10 40 20 5 10 30 150

MRP 22

MRP1.xls

EOQ example

Setup cost, S = $100Unit price, C = $50Holding costs, HR = .24 per annum

HP = .02 per period

Annual demand, D = 200 Q = (2DS / CHR)1/2 = 58

MRP 23

Period 1 2 3 4 5 6 7 8 9 10

Net rqmts. 35 10 40 20 5 10 30

Planned orders 58 58 58

Remnants 23 13 13 31 31 11 6 54 24 24

Period order quantity exampleTechnique:1. Compute EOQ to determine number of orders per year

2. Divide number of periods in one year by number of orders to get ordering interval

EOQ = 58Number of periods in one year = 12D = 200200 / 58 = 3.4 (orders per year)12 / 3.4 = 3.5 (ordering interval)

MRP 24

Period 1 2 3 4 5 6 7 8 9 Total

Net rqmts. 35 10

40 20 5 10

30

150

Planned orders 85 35 30

Example of the MRP ProcessItem: A Low-Level Code: 1

Lot Size: 25 Lead Time: 1PD 1 2 3 4 5

Gross Requirements 10 15 25 25 30

Scheduled Receipts 25

Projected on Hand 20

Net Requirements

Planned Order Receipts

Planned Order Releases

Example of the MRP ProcessItem: A Low-Level Code: 1

Lot Size: 25 min Lead Time: 1PD 1 2 3 4 5

Gross Requirements 10 15 25 25 30

Scheduled Receipts 25

Projected on Hand 20 10 20 20 20 15

Net Requirements 5 5 10

Planned Order Receipts 25 25 25

Planned Order Releases 25 25 25 30 25

Case Study

Hubbell Lighting Case

• Manufactures Industrial Lighting Products• Good-Quality Products• Poor at Meeting Due Dates• Work is Specialized for Each Customer• Job Shop Environment• Complex Products

Hubbell Lighting Case

Before MRP Implementation

• Less than 75% of orders completed on time

After MRP Implementation

• 97% of orders completed on time

• 2% of orders completed with 1 to 2 days after due date

ReferencesRussell, Roberta S., and Bernard W. Taylor III. Operations Management. 3rd

Edition: Prentice Hall, 2000

Grubbstrom, Robert W. Material Requirements Planning and Manufacturing Resource Planning. 03/12/2002. http://www.itbp.com/opsmanagement/iebm/material_requirements.htm.

Vormittag Associates, Inc. System 2000 MRP. 03/12/2002. http://www.vaihome.com/s2000mrp.htm.

Inventory Solutions. What is MRP?. 03/12/2002. http://www.inventorysolutions.org/def_mrp.htm.

Summary of MRP

MRP is…– Computerized Inventory Control

– Production Planning System…

– Schedules Component Items as Needed which will…

– Track Inventory and…

– Help in many other aspects of business…