MATERIAL

REQUIRMENT
PLANNING
AN OPERATION MANAGEMENT
TECHNIQUE.
MATERIAL REQUIRMENT
PLANNING
 American production and control
society(APICS) defines;
 MRPconstitutes a set of techniques that use
BOM, Inventory data and MPS to calculate
requirement for materials.
 It is the system of calculating the
needs/requirments of the input material at
different point of time based on the plan or
schedule for production of the finished
item/good/products.
EXPLANATION
 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 in
each 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 for
purchased materials and produced
components over the planning horizon.
OBJECTIVE OF MRP
 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
INPUTS TO THE
PRODUCTION PLAN

Marketing
Production Customer Finance
Capacity Demand Cash Flow
Inventory

Aggregate Human
Procurement
Production Resources
Supplier
Manpower
Performance Plan
Planning

Management Engineering
Return on Design
Investment Completion
Capital
MPR SYSTEM INPUTS
INDEPENDENT EXTERNAL ORDER
DEMAND SALES FOR
FORECAST COMPONENTS

INVENTORY PRODUCT
RECORD MRP SYSTEM STRUCTURE
OR LIST OF
COMPONENTS
REQUIRED

MASTER
PRODUCTION
SCHEDULE
DEFINITION
 LEAD TIME: Time need in completing the job from stage to final stage.
 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 to the
receipt of item/goods from the supplier. This time is dependent upon the
time required by the suppliers to deliver the items after the receipt of order.

 DATA FILES:
FIRST FILE: BOM( Mat. Record, tool requirement and lead time)
SECOND FILE: ENGINEERING DATA FILE(machine time routing and labour
requirement).
THIRD FILE: INVENTORY TRANSECTION FILE( running balances of parts and
subassemblies).
FOURTH FILE: OPEN ORDER FILE(order placed but not received or
completed).
FIFTH FILE: Master Production Schedule(indicates the number and timing
of all final product to be produced over the planning horizon).
 Capacity Requirement Planning:
 Toreconcile the MPS to labor & machine capacities of production
departments over the planning horizon.
 Safety stock:
 Qtnof 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 component
goes.
 Gross requirement:
 Totalrequirement for a particular material, without considering any
availability of the material in inventory or schedule receipts.
 Net requirement:
 Gross requirement – available material
INVENTORY CLASSIFICATIONS

Inventory

Process Number Demand

Other
stage & Value Type

Raw Material A Items Maintenanc

Independen
WIP B Items e
t
Finished Goods C Items Dependent
Dependent
Operating
DEPENDENT VERSUS
INDEPENDENT DEMAND

Item Materials With Materials With

Independent Demand Dependent Demand
Demand
Company Customers Parent Items
Source
Material
Finished Goods WIP & Raw Materials
Type
Method of
Forecast & Booked Calculated
Estimating
Customer Orders
Demand
Planning
EOQ & ROP MRP
Method
PowerPoint presentation to accompany © 2001 by Prentice Hall, Inc. Upper Saddle River, N.J.
Operations Management, 6E (Heizer & Render) 14-10 07458
REQUIREMENTS FOR EFFECTIVE USE OF
DEPENDENT DEMAND INVENTORY MODELS
 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
THE PLANNING PROCESS
Production Plan Master Production
Schedule

Material
Requirements
Plan

Capacity
Requirements
Plan

No Realistic??
Yes
Execute Capacity
Plans

Execute Material
Plans
 Independent
product MPS
demand

Inventory Inventory Product

MRP structure
transaction records
, BOM
Inventory
order
action

Priority
planning

Priority
integrity

Planned
order
schedules
Capacity
requirement Performance
control
planning
MRP CONCEPT
 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 the MRP calculations for the
final product.
 Stock on hand:
 It is level of inventory at the end of each period.
 Planned order release:
 Itis the plan to initiate the purchase or manufacture of
materials so that they will be received on schedule after the
lead time offset.
 Economic order quantity:
 Is calculated based on the set up cost and carrying cost.
CASE STUDY
 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

TABLE 2 DETAILS OF B.O.M
Parts Order No. of units Lead time Stock on
required quantity hand
Fire 300 1 1 150
extinguisher
Cylinder 450 1 2 350
Valve 400 1 2 325
assemblies
Valve 350 1 1 150
Valve 450 1 1 350
housing
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.
SOLUTION
 The projected requirement for the fire
extinguisher are same as the MPS which are
shown in table 2.
 The projected requirements of the cylinder
and 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.
 MRP CALCULATIONS
EOQ=300 LT=1week
period 0 1 2 3 4 5 6 7 8

Projected 100 150 140 200 140 300

requirement

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

Table: 1 Calculations for fire extinguisher

 MRP CALCULATION FOR ALL THE
SUBASSEMBLIES ARE PRESENTED
EOQ= 450 LT=2WEEKS

Period 0 1 2 3 4 5 6 7 8

Projected 300 300 300

requirement

receipts 450 450

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

Shortage -250 -100

Planned order release 450 450

Table 2: Calculations for cylinder

 EOQ = 400 LT = 1 WEEK

Period 0 1 2 3 4 5 6 7 8

Projected 300 300 300

requirement

receipts 400 400

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

Shortage -275 -175

Planned order release 400 400

Table 3: Calculations for valve assembly

 EOQ = 350 LT = 1 WEEK

period 0 1 2 3 4 5 6 7 8

Projected 400 400

requirement

Receipts 350 350

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

shortage -250 -300

Planned order 350 350

release

Table 4: Calculations for valve

 EOQ = 450 LT = 1WEEK

period 0 1 2 3 4 5 6 7 8

Projected 400 400

requirement

Receipts 450

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

shortage -50

Planned order 450

release

Table: 5 Calculations for valve housing

 EOQ = 700 LT = 1 week
Period 0 1 2 3 4 5 6 7 8
Projected 600 600 600
requirement
Reciepts 700 700
Stock 650 650 50 50 150 150 150 250 250
On
hand
shortage
Planned 700 700
Order
release

MRP calculations for handle bar

LOT SIZING IN MRP