Operations Management For Competitive Advantage ninth edition 1

CHASE AQUILANO JACOBS

Operations Management
For Competitive Advantage
Chapter 14

Material Requirements Planning

CHASE AQUILANO JACOBS ninth edition
©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 2

Chapter 14
Materials Requirements Planning
• Material Requirements Planning (MRP)
• MRP Logic and Product Structure Trees
• Time Fences
• MRP Example
• MRP II
• Lot Sizing in MRP Programs

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Material Requirements Planning

Defined
• Materials requirements planning (MRP) is the
logic 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.
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Example of MRP Logic and Product

Structure Tree
Given the product structure tree for “A” and the lead time and demand
information below, provide a materials requirements plan that defines
the number of units of each component and when they will be needed.

Lead Times
Product Structure Tree for Assembly A A 1 day
B 2 days
A C 1 day
D 3 days
E 4 days
F 1 day
B(4) C(2)
Demand
Day 10 50 A
D(2) E(1) D(3) F(2) Day 8
Day 6
20 B (Spares)
15 D (Spares)

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First, the number of units of “A” are scheduled backwards to

allow for their lead time. So, in the materials requirement plan
below, we have to place an order for 50 units of “A” in the 9th
week to receive them in the 10th week.

Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50

LT = 1 day

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Next, we need to start scheduling the components that make up “A”. In

the case of component “B” we need 4 B’s for each A. Since we need 50
A’s, that means 200 B’s. And again, we back the schedule up for the
necessary 2 days of lead time.
Day : 1 2 3 4 5 6 7 8 9 10
A Required 50
O rder P lac em ent 50
B Required 20 200
O rder P lac em ent 20 200

LT = 2
Spares
A 4x50=200

B(4) C(2)

D(2) E(1) D(3) F(2)

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Finally, repeating the process for all components, we have the
final materials requirements plan:
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200

A
Part D: Day 6
B(4) C(2) 40 + 15 spares

D(2) E(1) D(3) F(2)

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Master Production Schedule (MPS)

• Time-phased plan specifying how many and
when the firm plans to build each end item.

Aggregate Plan
(Product Groups)

MPS
(Specific End Items)

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Types of Time Fences

• Frozen
– No schedule changes allowed within this
window.
• Moderately Firm
– Specific changes allowed within product groups
as long as parts are available.
• Flexible
– Significant variation allowed as long as overall
capacity requirements remain at the same
levels.

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Operations Management For Competitive Advantage ninth edition 10

Exhibit 14.5
Example of Time Fences

Moderately
Frozen Firm Flexible

Capacity
Forecast and available
capacity
Firm Customer Orders

8 15 26

Weeks

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Material Requirements Planning

System
• 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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Aggregate Forecasts
Firm orders
product of demand
from known
plan from random
customers
customers

Master
Engineering
production Inventory
design
schedule transactions
changes
(MPS)

Bill of Material Inventory

material planning record
file (MRP) file

From Exhibit 14.6 Reports

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Bill of Materials (BOM) File

A Complete Product Description
• Materials
• Parts
• Components
• Production sequence
• Modular BOM
– Subassemblies
• Planning BOM
– Fractional options

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Inventory Records File

• Each inventory item carried as a separate
file
– Status according to “time buckets”.

• Pegging
– Identify each parent item that created demand.

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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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Net Change System

• Activity driven
• Net change schedules
• Potential for system nervousness

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Additional MRP Scheduling

Terminology
• Gross Requirements
• On-hand
• Net requirements
• Planned order receipt
• Planned order release

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MRP Example
Item On-Hand Lead Time (Weeks)
X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

Requirements include 95 units (80 firm orders and 15 forecast) of X in
week 10 plus the following spares:
Spares 1 2 3 4 5 6 7 8 9 10
A 12
B 7
C 10
D 15

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C Gross Requirements 45 36 64
LT=2 On-Hand=10 10
Net Requirements 35 36 64
Planned Order Receipt 35 36 64
Planner Order Release 35 36 64
D Gross Requirements 15 135
LT=2 On-Hand=20 15 5
Net Requirements 130
Planned Order Receipt 130
Planner Order Release 130

A(2) B(1)

C(3) C(2) D(5)

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Day: 1 2 3 4 5 6 7 8 9 10
X Gross Requirements 95
LT=2 On-Hand=50 50
Net Requirements 45
Planned Order Receipt 45
Planner Order Release 45
A Gross Requirements 90 12
LT=3 On-Hand=75 75
Net Requirements 15 12
Planned Order Receipt 15 12
Planner Order Release 15 12
B Gross Requirements 7 45
LT=1 On-Hand=25 7 18
Net Requirements 27
Planned Order Receipt 27
Planner Order Release 27
C Gross Requirements 45 36 54 10
LT=2 On-Hand=10 10
Net Requirements 35 36 54 10
Planned Order Receipt 35 36 54 10
Planner Order Release 35 36 54 10
D Gross Requirements 15 135
LT=2 On-Hand=20 15 5
Net Requirements 130
Planned Order Receipt 130
Planner Order Release 130

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Operations Management For Competitive Advantage ninth edition 22

Closed Loop MRP

Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning

No
Realistic? Feedback
Feedback
Yes
Execute:
Capacity Plans
Material Plans

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Operations Management For Competitive Advantage ninth edition 23

Manufacturing Resource Planning

(MRP II)
• Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
– manufacturing
– marketing
– finance
– engineering
• Simulate the manufacturing system

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Lot Sizing in MRP Programs

• Lot-for-lot (L4L)
• Economic order quantity (EOQ)
• Least total cost (LTC)
• Least unit cost (LUC)

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Phasing JIT into an MRP Plant

• Relocate Inventory from SR to Shop Floor
• Introduce a Pull System for Daily Schedule
• Explode MRP Weekly or As Needed
• Greatly Reduce Set-Up Times and
Leadtimes
• Create a New Layout
– Further inventory reductions
– MRP used to
» Create MPS
» Update inventories through backflushing Last Slide
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