Pom 16 - MRP

Material Requirement
Planning
Upendra Kachru
OPERATIONS MANAGEMENT
Material Requirements Planning

Materials requirements planning (MRP) is a means for
determining the number of parts, components, and
materials needed to produce a product
MRP provides time scheduling information specifying
when each of the materials, parts, and components should
be ordered or produced
Dependent demand drives MRP
MRP is a software system
Upendra Kachru
MATERIAL PLANNING
Master Production
Schedule (MPS)
(what we plan)
Inventory
Status
Records
(what we have)
Material
Requirements
Planning (MRP)
(what we require)
Product
Structure
Records
(what we need)
Purchasing
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Manufacturing
Primary Prerequisites
For MRP
1. A Master Production Schedule exists
and can be stated in bill of materials
form;
2. All inventory items are uniquely
identified;
3. A bill of material exists at the time of
planning
4. Inventory records contain data on the
status of every item;
5. There is integrity of file data.
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Master Data
Material Master
MRP Group - Group common MRP materials together

MRP Type - Planning Method.
Planning Time Fence - Restricts Activities
Lot Sizing - Lot Size determination
Storage Cost Indicators - For Optimum Lot sizing Only
Ordering Costs
Assembly Scrap - For Assembly Scrap Only
Procurement Type - Make or Buy Indicator.
Safety Stock
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Based on a master production

schedule, a material
requirements planning system:
Creates schedules identifying the

specific parts and materials
required to produce end items
Determines exact unit numbers

needed
Determines the dates when orders

for those materials should be
released, based on lead times
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Material
Requirements
Planning System
Primary MRP Reports

Planned orders to be released at a future time
Order release notices to execute the planned orders
Changes in due dates of open orders due to rescheduling

Cancellations or suspensions of open orders due to
cancellation or suspension of orders on the master
production schedule
Inventory status data
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Secondary MRP Reports

Planning reports, for example, forecasting inventory
requirements over a period of time
Performance reports used to determine agreement

between actual and programmed usage and costs
Exception reports used to point out serious
discrepancies, such as late or overdue orders
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Overview : BOM Explosion
Bill of Materials
Net Requirements Calculation

Lot- size calculation
Procurement type
Scheduling
BOM Explosion: Determine

the valid BOM for explosion
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Bill of Materials
The bill of materials is a materials list that provides information
useful to reconstruct the manufacturing process.
It is the master product definition that contains as-designed
information.
The information includes product description:
Materials
Parts
Components
Production sequence
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A Typical Engineering Bill of Materials

Level
Part-
Revision
Quantity
Description
Make/buy
16844-23003
Adapter
Make
16844-23004
Control Unit
Buy
16844-23010
Moisture
Tester
Make
16844-23023
Enclosure
Buy
16844-23024
Enclosure
Buy
16844-23025
Machine
Screw
Buy
16844-23033
Cover
Buy
16844-23030
AA
Precipitatory
Assy.
Make
16844-23040
Element
Buy
16844-23043
Housing
Buy
16844-23048
Machine
Buy
16844-23049
Precipitator
Buy
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The bill of material file provides

complete information on:
Raw materials in stock
Semi finished component parts in
stock
Finished component parts in stock
Sub-assemblies in stock
Component parts in process
Sub-assemblies in process
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BOM File
12
Each inventory item is carried as a

separate file
The bill of materials pegs materials i.e.
lists components of each assembly and
subassembly linking of individual item
bills which from the product, resulting
in a hierarchical, and pyramid like
structure with different levels.
It Identifies each parent item that
created demand
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Bill Of Materials
(BOM) File:
Typical Product Structure

P
Parent
Level 2
G
X
The bill of material file guides the explosion process.

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Level 1
Level 3
BOM Selection
BOM Selection ID
Planned order
Priority
Usage
Production
Engineering
Used if no valid production

BOM exists
Production
BOM
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Engineering
BOM
Costing
BOM
It is an artificial grouping of items

in bill of materials format, which
expresses the relationship of
multiple product features, variants
and options, where inventory
items are arranged in terms of
product modules each of which
can be planned as a group.
Modular bill kept for each major
subassembly
Simplifies forecasting and planning
Modular Bill of
Materials
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Modular BOM
X10
Automobile
Engines
(1 of 3)
Exterior color
(1 of 8)
Interior
(1 of 3)
Interior color
(1 of 8)
Body
(1 of 4)
4-Cylinder (.40)
Bright red (.10)
Leather (.20)
Grey (.10)
Sports coupe (.20)
6-Cylinder (.50)
White linen (.10)
Tweed (.40)
Light blue (.10)
Two-door (.20)
8-Cylinder (.10)
Sulphur yellow (.10)
Plush (.40)
Rose (.10)
Four-door (.30)
Neon orange (.10)
Off-white (.20)
Station wagon (.30)
Metallic blue (.10)
Cool green (.10)
Emerald green (.10)
Black (.20)
Jet black (.20)
Brown (.10)
Champagne (.20)
B/W checked (.10)
Combinations = 3 x 8 x 3 x 8 x 4 = 2,304 configurations

Combinations = 3 + 8 + 3 + 8 + 4 = 26 modular bills
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There are two somewhat different

objectives, in modularization.
To disentangle combination of
optimal product features.
To segregate common from unique,
or peculiar parts.
Objectives of
Modularization
The first is required to facilitate

forecasting.
The second is aimed at minimizing
inventories in components that are
common to option alternatives
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Net Requirements
Calculation
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1. Individual item lead times are known;

2. Every inventory item goes into and out
of stock
3. All of the components of an assembly
are needed at the time of release of
assembly orders;
4. There is discrete disbursement and
usage of component materials
5. Process independence of manufactured
items is ensured.
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Assumptions

MRP will compare the requirement and supply to get a
shortage gap. A comparison is made between
store/warehouse stock and the appropriate receipts and
issue.
1.
2.
3.
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Determine Available Store/

Warehouse Stock
Determine Planned Receipts (after
considering existing issues and
receipts)
Calculate the Shortage Quantity
MRP: Net Requirements Calculation

Matching Demand and Supply
Shortage
Lot Size
Sales Orders
Planned Orders
Planned Ind Reqmts
Production Orders
Compare
Dependent Reqmts
Purchase Requisitions
Reservations
Purchase orders
Warehouse Stock
Safety Stock
Supply
Demand
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How the Planning Run Works

In the net requirements calculation, a difference is made between
reorder point planning, forecast-based planning, and MRP. In each
procedure, the system calculates available stock differently.
Reorder Point Planning
When Available Stock falls below reorder level, planned orders are
generated in the planning run to order up to reorder level. Safety Stock
requirement is just for information
Available Stock = Plant Stock + Receipts
Forecast Based Planning
System only considers forecast requirements (any other requirements are not
considered). Planned orders are proposed when available stock is less than
forecast requirements.
Available Stock = Plant stock - Safety Stock + Receipts - Forecast Requirements
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BOM Explosion
Usage quantity
Items relevant to
Explosion date
/dates
production
Target
Dependent reqmts
quantities and dates
Component selection
Change status
Lot size
Usage
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BOM Explosion: Selection by Order Start

Order start
Order start
Order 1
BOM 1
Order 2
BOM 2
BOM 3
Time
Valid from
(relevant to
planning from )
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Valid from
(relevant to
planning from )
Valid from
(relevant to
planning from )
Explosion: Using the Order Finish Date

Order finish
Order 1
BOM 1
Valid from
(relevant to
planning from )
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Order finish
Order 2
BOM 2
Valid from
(relevant to
planning from )
BOM 3
Time
Valid from
(relevant to
planning from )
Safety Stock
Handling Safety Stock

Stock
Safety stock: To be set in material
master
Available
quantity
for planning
Safety stock
(not available
for planning)
Reqmt
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Time
Receipt
Planning Time Fence

Plan is protected from changes within the planning time fence.
End date of time fence determined from planning date.
You can configure system as to how you want the orders to react
within the time fence.
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Planning Time Fence

Outside the time fence, system creates order proposal as usual.
When new orders move into the time fence, they may be firmed
automatically depending on how the system is configured.
Firming Types for MRP Planned Materials :
Orders Moving Into
Firming Types TimeFence
Type 1
Firmed
Type 2
Firmed
Type 3
Not Firmed
Type 4
Not Firmed
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New Order
Proposals Creation
Outside Time Fence
No Orders Created
Outside Time Fence
No Orders Created
New Order
Status
Not Firmed
NA
Not Firmed
NA
Lot Size Calculations and Scheduling
Lot- size calculation

Procurement type
Scheduling
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Overview of Lot- Sizing Procedures

Definition in
Customizing
Entered in
Material master
Lot- sizing procedures

Static
procedures
Other
Period
procedures
Lot- for -lot order quantity
Fixed lot size
Optimal Lot sizing
EOQ
Determining the Lot Size

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Lot Sizing in MRP Programs
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Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
Which one to use?
The one that is least costly!
Optimum Lot- Sizing Procedures

Many deliveries /
High order costs
Few deliveries /
Low order costs
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Minimal stockkeeping/
Minimal storage costs
More extensive stockkeeping/

Higher storage costs
Procurement Types
Procurement Types
In- house
production
Production in
own plant
Stock transfer
Production in
another plant
Reservation in
another plant
External procurement
Subcontracting
Vendor
Components
Components
Procurement types
Special procurement types
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Backward Scheduling
Planned order
Opening period
Scheduling margin
key (MRP 2)
In-house production time

Lot- size dependent : MRP 2
Lot- size independent : work scheduling
Goods receipt
processing time
MRP 2
Time
Opening
date
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Order start
date
Order finish
date
Availability
date
Scheduling
The following times are taken into account :
Processing time required by purchasing department (workdays)
Planned delivery time of the material (calendar days)
Goods receipt processing time (workdays)
These times will be used to determine the release date of the

planned order or purchase requisition.
Upendra Kachru
MRP Example
Item
X
A
B
C
D
X
A(2)
C(3)
B(1)
C(2)
On-Hand Lead Time (Weeks)

50
2
75
3
25
1
10
2
20
2
D(5)
Requirements include 95 units (80 firm orders and 15 forecast) of X in

week 10
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Day:
X
LT=2
A(2)
It takes 2
As for
each X
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
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Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
10
95
50
50
50
50
50
50
50
50
50
50
45
45
45
90
75
75
75
75
75
75
75
75
15
15
15
45
25
25
25
25
25
25
20
40
45
10
10
10
10
35
25
10
35
35
40
40
40
100
20
20
20
20
20
20
20
80
80
80
25
20
20
Day:
X
LT=2
A(2)
Onhand
50
A
LT=3
B(1)
It takes 1
B for
each X
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
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Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
10
95
50
50
50
50
50
50
50
50
50
50
45
45
45
90
75
75
75
75
75
75
75
75
15
15
15
45
25
25
25
25
25
25
20
40
45
10
10
10
10
35
25
10
35
35
40
40
40
100
20
20
20
20
20
20
20
80
80
80
25
20
20
Day:
X
LT=2
A(2)
Onhand
50
A
LT=3
B(1)
C(3)
Onhand
75
B
LT=1
Onhand
25
C
LT=2
It takes 3
Cs for
each A
Onhand
10
D
LT=2
Onhand
20
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Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
10
95
50
50
50
50
50
50
50
50
50
50
45
45
45
90
75
75
75
75
75
75
75
75
15
15
15
45
25
25
25
25
25
25
20
40
45
10
10
10
10
35
25
10
35
35
40
40
40
100
20
20
20
20
20
20
20
80
80
80
25
20
20
Day:
X
LT=2
A(2)
C(3)
Onhand
50
A
LT=3
B(1)
C(2)
Onhand
75
B
LT=1
Onhand
25
C
LT=2
It takes 2
Cs for
each B
Onhand
10
D
LT=2
Onhand
20
Upendra Kachru
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
10
95
50
50
50
50
50
50
50
50
50
50
45
45
45
90
75
75
75
75
75
75
75
75
15
15
15
45
25
25
25
25
25
25
20
40
45
10
10
10
10
35
25
10
35
35
40
40
40
100
20
20
20
20
20
20
20
80
80
80
25
20
20
Day:
X
LT=2
A(2)
Onhand
50
A
LT=3
B(1)
D(5)
C(3)
C(2)
It takes 5 Ds
for each B
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Upendra Kachru
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
Gross requirements
Scheduled receipts
Net requirements
10
95
50
50
50
50
50
50
50
50
50
50
45
45
45
90
75
75
75
75
75
75
75
75
15
15
15
45
25
25
25
25
25
25
20
40
45
10
10
10
10
35
25
10
35
35
40
40
40
100
20
20
20
20
20
20
20
80
80
80
25
20
20
18-43
MRP - Closed Loop System

Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning
No
Feedback
Realistic?
Feedback
Yes
Execute:
Capacity Plans
Material Plans
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MRP Scheduling Terminology

Gross Requirements
Scheduled receipts
Projected available balance
Net requirements

Planned order release
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Forward Scheduling
Automatic, if order start date is in the
past during backward scheduling
Today
Planned order
In-house production time
Goods receipt
processing time
Time
Order start
date
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Order finish
date
Availability
date
ERP SYSTEMS
Upendra Kachru
What is ERP?
Enterprise Resource Planning
It attempts to integrate all data and processes of an organization into
a unified system. A typical ERP system will use multiple
components of computer software and hardware to achieve the
integration. A key ingredient of most ERP systems is the use of a
unified database to store data for the various system modules.
Upendra Kachru
Evolution of ERP
1960s: software packages with inventory control

1970s: MRP systems
Production schedule with materials management
1980s: MRPII systems

Adds financial accounting system
1990s: MRPII
Integrated systems for manufacturing execution
Late 1990s: ERP

Integrated manufacturing with supply chain
2000s: ERP II
Upendra Kachru
ERP - Definition
ERP is a process of managing all resources and their use in the entire
enterprise in a coordinated manner
ERP is a set of integrated business applications, or modules which carry out
common business functions such as general ledger, accounting, or order
management
Put simply, ERP systems tie together varied processes using data
from across the company. For instance, a typical ERP system
manages functions and activities as different as the bills of materials,
order entry, purchasing, accounts payable, human resources, and
inventory control, to name just a few of the modules.
Upendra Kachru
Problems of Legacy Systems

Automates existing processes
Normally not driven by organization strategy and business vision.
Develop one application at a time. No integration between applications just
transaction passing.
Decentralized applications.
Are relatively inflexible to accommodate changes in the business environment.
Written in language / platform prevalent at the time of development.
Up gradation to latest technology is difficult
Usually not well documented.
Maintenance is a problem largely because of poor documentation and staff
attrition.
Upendra Kachru
What makes ERP different

Supports business through optimizing, maintaining,
and tracking business functions
Upendra Kachru
Integrated modules
Common definitions
Common database
Update one module, automatically updates others
ERP systems reflect a specific way of doing business
Must look at your value chains, rather than functions
Process View of Business
Logistics
Function
Production
Function
Purchasing
Function
Accounting
Function
Sales
Function
Customer Order Process
Material Order Process

The basic ERP Model is based on a process view of the organization. Each of the tasks
may cross functional boundaries
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ERP Structure
The foundation of ERP systems is popularly called the Stool. The stool is made up of three
basic elements Market Sales and Distribution, the Product Materials Management and
Production and the Financial Accounting and Control.
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ERP System Drivers

Executive
Management
Middle
Management
Operational
Management
Operations
Finance
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Sales
DistributionProduction
Human
Resources
54
Financials
Financial and management accounting
Internal Controlling and Audit
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Financial Supply Chain Management

General Ledger
Financial Reporting
Costing
Budgeting
Accounts Payable
Accounts receivables
Human Capital Management
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Recruiting
Applicant data administration Compensation
Assessment
Development and Training
Personnel development planning
Payroll
Benefits administration
Workforce planning
Schedule & shift planning
Time management
Travel expense accounting
Marketing & Sales Management
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Lead tracking
Sales forecasting
Order management
Customer management
Customer service
Operations
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Materials management
Inventory management
Plant maintenance
Quality management
Production planning & control
Project management system
Example of How ERP Works

ERP delivers a single database that contains all data for the software
modules across an entire company. People in different departments all see
the same information and can update it. For example:
Step 1 : Brazilian retailer orders, via the Internet, 1,000 shoes
from International Shoe Co. A sales rep takes the order, routes it
to ERPs ordering module, ERP checks the retailer credit, price,
etc. The order is approved.
Step 2 : Simultaneously ERPs inventory module checks the
stocks and notifies the rep that half the order can be filled
immediately from stock. The other half will be manufactured
and delivered in 5 days directly from the factory in Taiwan.
Upendra Kachru
Example of How ERP Work

Step 3 : ERPs manufacturing module schedules the production in
Taiwan and instructs the warehouse (in China) to ship the shoes to
Brazil and print up an invoice (in Portuguese).
Step 4 : ERPs human resources module calculates labor
requirements. Due to a shortage, the personnel manager in Taiwan
is instructed to get temporary workers.
Step 5 : ERPs material planning module notifies the purchasing
manager about a shortage of purple dye. A purchase order is
automatically issued.
Upendra Kachru
Example of How ERP Work

Step 6 : The customer logs on via the extranet to the
companys sneakers division. He can see that 500 shoes were
shipped from the regional warehouse. This is done with ERP
tracing capabilities.
Step 7 : Based on data from ERPs forecasting and financial
modules, the CEO can determine both demand and
profitability per product. The financial module also converts
all foreign money to $U.S., whenever needed
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Benefits of ERP
Desire to standardize and improve processes

To improve the level of systems integration
To improve information quality
Common set of data
Help in integrating applications for decision making and
planning
Allow departments to talk to each other
Easy to integrate by using processed built into ERP software
A way to force BPR (reengineering)
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Difficulty in implementation
Very difficult
Extremely costly and time intensive
Typical: over $10,000,000 and over a year to implement
Company may implement only certain modules of entire
ERP system
You will need an outside consultant
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Common Pitfalls
Do not adequately benchmark current state

Did not plan for major transformation
Did not have executive sponsorship
Did not adequately map out goals and objectives
Highly customized systems to look like old MRP systems
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Material Requirement

Material Requirements Planning

MRP Group - Group common MRP materials together

Based on a master production

Creates schedules identifying the

Determines exact unit numbers

Determines the dates when orders

Primary MRP Reports

Changes in due dates of open orders due to rescheduling

Secondary MRP Reports

Performance reports used to determine agreement

Overview : BOM Explosion

Net Requirements Calculation

BOM Explosion: Determine

A Typical Engineering Bill of Materials

The bill of material file provides

Each inventory item is carried as a

Typical Product Structure

The bill of material file guides the explosion process.

Used if no valid production

It is an artificial grouping of items

Bright red (.10)

Sports coupe (.20)

White linen (.10)

Light blue (.10)

Sulphur yellow (.10)

Neon orange (.10)

Station wagon (.30)

Metallic blue (.10)

Cool green (.10)

Emerald green (.10)

Jet black (.20)

B/W checked (.10)

Combinations = 3 x 8 x 3 x 8 x 4 = 2,304 configurations

There are two somewhat different

The first is required to facilitate

Net Requirements Calculation

1. Individual item lead times are known;

Net Requirements Calculation

Determine Available Store/

MRP: Net Requirements Calculation

How the Planning Run Works

BOM Explosion: Selection by Order Start

Explosion: Using the Order Finish Date

Handling Safety Stock

Planning Time Fence

Planning Time Fence

Lot Size Calculations and Scheduling

Lot- size calculation

Overview of Lot- Sizing Procedures

Lot- sizing procedures

Lot- for -lot order quantity

Fixed lot size

Optimal Lot sizing

Determining the Lot Size

Lot Sizing in MRP Programs

Optimum Lot- Sizing Procedures

More extensive stockkeeping/