Resource Requirement Planning


Published on

In this presentation, we will discuss material planning systems and its evolution. Overview on MRP processes, its objectives and types of demands. We will also talk about the various terminologies like bills of material, inventory record, operating logics, MRP explosion process, capacity requirement planning.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:

Published in: Education, Business, Technology

Resource Requirement Planning

  1. 1. Production Planning & ControlChapter 3 Resource Requirement Planning Chapter3 1
  2. 2. Evolution of Material Planning SystemsBack in the sixties, manufacturing planning systemswere reorder point systems that simply determinedwhen and how much to orderFirst MRP systems translated a master schedule of finalproducts into time-phased net requirements forsubassemblies, assemblies, and partsClosed-loop MRP included production planning,master scheduling, and capacity requirementsIn mid 1970’s, MRPII systems added functionality toplan and execute all internal functions Chapter3 2
  3. 3. Material Requirements Planning (MRP)Computer-based information system thatschedules and orders dependent-demandinventory components;Uses the master production schedule, bills ofmaterials, and inventory records as inputs;Outputs recommendations:– When to release new orders.– When to reschedule open orders. Chapter3 3
  4. 4. An Overview of MRPMRP uses the concept of backward scheduling to determine howmuch and when to order and replenishThe CPR module checks to make sure the scheduled work loadprofile is feasibleThe MPS module contains the authorized scheduleThe BOM module contains the product structure for each uniqueproductThe Inventory Record module keeps track of the inventorystatus for each item in the databaseMRP output includes schedules for all internal activities andparts as well as orders for all supply chain items Chapter3 4
  5. 5. MRP SystemChapter3 6
  6. 6. Input/Output - MRP Process Chapter3 7
  7. 7. MRP Inputs1. A master production schedule2. A Bill of Materials3. An inventory records file re ctu Stru t uc es od Pr e m re d Ti T ea L
  8. 8. MRP Inputs Bill of materials (BOM): a listing of all ofthe raw materials, parts, subassemblies,and assemblies needed to produce one unitof a product. Each finished product has its own bill of materials. Product structure tree: Visual depiction ofthe requirements in a bill of materials,where all components are listed by levels.
  9. 9. MRP Inputs Bill of materials (BOM): The BOM identifies, how each end product ismanufactured, specifying all subcomponent items,their sequence of buildup, their quantities in eachfinished unit, and which work centers perform thebuildup sequence in the facility. This information is obtained from product designdocuments, work flow analysis, and other standardmanufacturing and industrial engineeringdocumentation.
  10. 10. MRP InputsBill of materials (BOM):
  11. 11. MRP Inputs Inventory records: Includes information on the status of eachitem by time period: •Gross requirements •Scheduled receipts •Expected amount on hand •Lead time •Lot size policy •And more …
  12. 12. MRP Outputs Planned orders - Schedule indicatingthe amount and timing of future orders. Order release - Authorization for theexecution of planned orders. Changes - revisions of due dates ororder quantities, or cancellations oforders.
  13. 13. MRP Outputs Performance-control reports evaluatesystem operations. Planning reports are useful in forecastingfuture inventory requirements. Exception reports call attention to majordiscrepancies.
  14. 14. Types of DemandThere are two types of demand.Independent Demand– Is the demand for finished products– Does not depend on the demand of other products– Needs to be forecastedDependent Demand– Is the demand derived from finished products– Is the demand for component parts based on the number of end items being produced and is managed by the MRP system Chapter3 17
  15. 15. MRPResponds to the fundamental manufacturingequation:– What are we going to make? » Master production schedule.– What does it take to make it? » Bill of materials.– What have we got? » Inventory records.– What do we have to get? » Material Requirements plan: planned orders. Chapter3 18
  16. 16. Objectives of MRPDetermines the quantity and timing ofmaterial requirements– Determines what to order (checks BOM), how much to order (lot size rules), when to place the order (needed date minus lead time), and when to schedule delivery (on date needed)Maintain priorities– In a changing environment, MRP reorganizes priorities to keep plans current and viable Chapter3 19
  17. 17. Building a CD Cabinet With MRP Chapter3 20
  18. 18. MRP Inputs - Authorized MPS From the authorized MPS, we calculate when we need to have replenishment orders of CD cabinets; when we need a new MPS order.Table 14-1 Initial MPS Record for CD CabinetItem: CD CabinetLot size rule: FOQ=100Lead time: 1 week 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35Projected Available: 80 55 30 5 -20MPSTable 14-2 Updated MPS Record for CD CabinetItem: CD CabinetLot size rule: FOQ=100Lead time: 1 week 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35Projected Available: 80 55 30 5 80 50 20 90 60 25 90 55 20 Chapter3 21MPS 100 100 100
  19. 19. MRP Inputs-Inventory Records System checks the inventory record for each BOM item to see if inventory is available or if a replenishment order is needed to build the cabinets.Table 14-3 First Inventory Record for CD CabinetItem: CD CabinetLot size rule: L4LLead time: 1 week 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0Scheduled Receipts:Projected Available: 0 0 0 0 -100Planned OrdersTable 14-4 Updated Inventory Record for CD CabinetItem: CD CabinetLot size rule: L4LLead time: 1 week 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0Scheduled Receipts:Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0Planned Orders 100Chapter3 100 100 22
  20. 20. MRP Inputs-Bills of Material A BOM lists all of the items needed to produce one CD cabinet The BOM is exactly like a recipe for baking a cake The BOM’s must be complete and accurate and can only be changed by an ECN MRP BOM’s are indented bills of materials Chapter3 23
  21. 21. Bill of Materials (BOM)Contains product description (components) andsequence of assembly.Also called product structure or product tree.Levels: end item at 0, assemblies for end item at1, subassemblies for assemblies at 2, etc.Low-level coding: placing identical items usedfor multiple purposes at the same level. Chapter3 24
  22. 22. A Product Structure Tree Chapter3 25
  23. 23. Inventory RecordsContainsinformation abouteach inventoryitem and its status(e.g., on-handbalance). Chapter3 26
  24. 24. Inventory RecordGross requirements:– The total period demand for the itemScheduled receipts:– An open order with an assigned due dateProjected available:– The projected inventory balance for the periodPlanned orders:– Quantities & released dates suggested by the MRP system Chapter3 27
  25. 25. MRP System InputsMaster production ScheduleThe MPS specifies what end products are tobe produced and when .The planning horizon should be long enoughto cover the cumulative lead times allcomponents that must be purchased ormanufactured to meet the end productrequirement Chapter3 28
  26. 26. Lot Sizing RulesRules are used to change the frequency ofreplenishment orders & set the quantity of eachorder (balance holding & ordering costs toreduce total costs)Common rules:– Fixed Order Quantity (FOQ)– Lot-for-Lot (L4L)– Periodic Order Quantity (POQ) Chapter3 29
  27. 27. MRP TermsTime bucket: period, usually 1 week.Planning horizon: number of periods.Lead time offset: offsets a planned order releasefrom a required replenishment.Net requirement: difference between the grossrequirements and the available inventory. Chapter3 30
  28. 28. DefinitionsEnd item:– The product sold as a completed item or repair part (an independently demanded item)Parent items:– Items produced from one or more “children”Components:– Raw materials & other items (“children”) that are part of a larger assembly Chapter3 31
  29. 29. DefinitionsTime buckets:– The column in an inventory record that represents a unit of timeAction bucket:– The current time periodAction notices:– Output from the MRP system identifying the need for an action (e.g.: expedite or delay an order or receipt) Chapter3 32
  30. 30. ExampleInventory Record for Pie SafeItem: Pie SafeLot size rule: L4LLead time: 1 week 0 1 2 3 4 A 5Time Bucket 6 7 8 9 10 11 12Gross requirements 0 0 0 100 0 0 100 0 0 100 0 0Scheduled receipts 100 100 100Projected available 0 0 0 0 0 0 0 0 0 0 0 0 0Planned orders 100 100 100 Chapter3 33
  31. 31. Operating LogicExplosion:– Calculate the children’s time-phased gross requirements by multiplying the parent item’s planned order amount by the number of children required to produce one parent item Chapter3 34
  32. 32. The MRP Explosion ProcessTable 14-6 Updated Inventory Record for CD CabinetItem: CD Cabinet Parent: noneLot size rule: L4L Children: Top, bottom, door, left side, right side, shelves, shelf supportsLead time: 1 week 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements: 0 0 0 100 0 0 100 0 0 100 0 0Scheduled Receipts:Projected Available: 0 0 0 0 0 0 0 0 0 0 0 0 0Planned Orders: 100 100 100 Using table 14-6 and the product structure tree, we will work through an example of how the MRP explosion process would calculate the requirements for building a CD cabinet. On the next slide we start with the cabinet top to illustrate how MRP calculates the gross requirements for this component. Chapter3 35
  33. 33. Inventory Records - ComponentsIt was noted on the previous slide that the parent item (CD Cabinet) hasplanned orders in periods 3, 6, and 9.Its children (top, bottom, door, left & right side, shelves, and supports)have gross requirements in periods 3, 6, and 9. Chapter3 36
  34. 34. Inventory Records - Components Chapter3 37
  35. 35. Inventory Records– Components (cont.) Chapter3 38
  36. 36. Inventory Records– Components (cont.) Chapter3 39
  37. 37. Inventory Records – Remaining Components Chapter3 40
  38. 38. Inv. Records – Remaining Components (cont.) Chapter3 41
  39. 39. Inv. Records – Remaining Components (cont.) Chapter3 42
  40. 40. Example Comparing Lot Size Rules: Three common lot sizingrules used within MRP Systems are fixed order quantity (FOQ), lot for lot (L4L), and period order quantity (POQ). Cost comparison is based on Inventory holding costs ($0.10 per period) and ordering cost ($25 per order). In this example POQ is best at $133.50. Chapter3 43
  41. 41. Capacity Requirements Planning (CRP)Similar to rough cut capacity planningCRP is a feasibility check on labor & machineutilization:– Compare the open orders & planned orders (from the MRP) to the actual shop floor capacity Chapter3 44
  42. 42. Rough Cut Capacity Example: The CRP module uses data from MRP. We calculate workloads for critical work centers based on open shop orders and planned shop orders. These shop orders are translated into hours of work by work center and by time period. Table 14-11 show items scheduled for work Center 101. A B C D E F G 1 Table 14-11 Workload for Work Center 101 2 Run Time Total 3 Setup per Unit in Item Weekly 4 Item Time Standard Time Workload 5 Period Number Quantity (hours) Hours (hours) (hours) 6 4 DN100 250 3.0 0.20 53.0 7 DP100 250 5.0 0.18 50.0 8 DS119 150 2.5 0.30 47.5 9 DT136 400 3.5 0.27 111.5 262.010 5 EQ555 1000 8.0 0.08 88.011 ER616 500 4.0 0.22 114.012 ES871 100 2.0 0.35 37.0 239.013 6 FA314 250 3.0 0.30 78.014 FF369 100 1.5 0.12 13.515 FR766 50 0.5 0.15 8.016 FS119 200 3.0 0.35 73.017 FY486 500 6.0 0.27 141.0 313.5Available = 4 machines x 2 shifts x 10 hours x 5 days x 0.85 utiliza- x 0.95 effi-Capacity per shift per wk. tion ciencyAvailable = 323.0 standard hours Chapter3 45Capacity
  43. 43. Workload Graph for Work Center 101: CRP enables acompany to evaluate both the feasibility of the MRP system and how well the company is using its critical work centers. Chapter3 46
  44. 44. Issues in MRPSome of the issues which deserve considerration in any comprehensive treatment of MRPare:Safety stock ,Lot-sizing , Scrap allowancePegging , Cycle countingUpdatingTime fence Chapter3 47
  45. 45. MRP System—Other IssuesSafety stock: There are divergent viewsregarding whether the safety stock is used or notOne side of argument supporting the use ofsafety stock is that it performs the function ofavoiding excessive shock outs caused by certainlead times &daily demand.On the other hand those who oppose the use ofsafety stock argues that safety stock is notrequired because MRP system adopts tochanging conditions that affect demand and leadtimes Chapter3 48
  46. 46. MRP System Issues-Lot SizeLot size : The MRP system generates Plannedorder release, which triggers purchase orders foroutside suppliers , or production orders(WO)Various methods of Lot sizing– Lot-for-lot (L4L or LFL): lot size matches net requirements.– Least total cost (LTC): calculates a lot size that equalizes holding and ordering costs.– Least unit cost (LUC): averages the LTC across the lot size. Chapter3 49
  47. 47. MRP System Issues-Lot SizeThe lot size may be determined by the periodorder quantity(POQ) Technique.POQ = No of weeks per year No of orders per year = N D/Q D=Annual demand Q=Economic Order quantity N=Number of Weeks per year Chapter3 50
  48. 48. MRP System Issues Scrap AllowanceScrap allowance: The bill of materialexplosion could include multiplication by afactor (more than one) to make an allowancefor usual scrap loss in manufacturing an item. Chapter3 51
  49. 49. MRP System Issues -PeggingThe MRP Pegging system is a new set of commandsfor your MG system which are designed to assist youwith your analysis of your MRP run.The MRP pegging system copies the MRP informationinto an easy to access image data base for inquires byusers. A data base guide, and schemas are providedto users that may want to write their own inquires.The utility also contains logic to determine if this is anew MRP suggestion or a suggestion that has appearon previous MRP runs. We keep track of whichsuggestions are new and the age of whichsuggestions have not been addressed.The system provides the Manman user with thefollowing new features: Chapter3 52
  50. 50. MRP System Issues -PeggingNet Change MRP report - by selecting only newMRP suggestions, we can provide information ononly what has changed since the last MRP runMRP Volatility - the system tracks the number ofnew MRP messages generated and the number ofMRP suggestions processedList Component Pegging The system provides alist command that provides a multi-level view ofwhere demand is coming from.Combination Order Action / Reschedule report Chapter3 53
  51. 51. MRP System Issues –Cycle Counting"Cycle counting is truly a powerful working tool formaintaining inventory record accuracy," "Finding erroneous records, sleuthing their causes, andcorrecting these causes are the power base of cyclecounting." However, they find that sleuthing error causes isfrequently ignored as the process is not well understood oreasy to perform.Brooks and Wilson, both of whom are consultants with theOliver Wight organization, also delve into a lengthydiscussion and analysis of inventory tactics versusinventory control."It is important to recognize the impact that inventory tacticshave on control issues," they explain. "Inventory tacticsmust be decided upon first before any inventory controlissues are addressed Chapter3 54
  52. 52. MRP System Issues –Cycle Counting." They identify and describe, by example, thevarious elements of both inventory tactics andinventory control. Inventory Record Accuracy,Second Edition, describes how to establish andmaintain inventory record accuracy in a Leanenvironment and covers new topics such as RFIDand supplier/vendor-managed inventory.Additionally, Brooks and Wilson have significantlyexpanded their explanation of inventory recordtolerances and added a number of graphicaldisplays and visuals to enhance the understandingof establishing tolerances. Chapter3 55
  53. 53. Benefits of MRPLow levels of in-process inventories.The ability to keep track of materialrequirements.The ability to evaluate capacity requirementsgenerated by a given master schedule.A means of allocating production time. Chapter3 56
  54. 54. MRP IIManufacturing Resources Planning (MRP II): II)Expanded MRP with emphasis placed onintegration– Financial planning– Marketing– Engineering– Purchasing– Manufacturing Chapter3 57
  55. 55. MRP II Market MasterFinance Manufacturing Demand production schedule Adjust master scheduleMarketing Production plan MRP Rough-cut Capacity capacity planning planning Adjustproduction plan Yes No Requirements No Yes Problems? schedules Problems? Chapter3 58
  56. 56. Problems in MRP Training: The workers have to be trained to learn andbecome proficient with a new system and its processes. Integration and testing: Integrating the computersystems associated with different areas of the firm andtesting the links between various corporate areas andsystems. Data conversion and data analysis Consultant fees Solving implementation problems on an ongoing basis Dealing with disappointing short-term results Competition for high quality workers especially in theIT field . Chapter3 59
  57. 57. Close loop MRP Manufacturing Business Plan Purchase Production PlanMaster Schedule EngineeringRough cut capacity Plan Marketing Material Requirement Plan Finance DetailedCapacity plan Accounting Shop floor Control Chapter3 Chapter3 60
  58. 58. Resource Requirement PlanningEnd OfChapter 3 Chapter3 61
  59. 59. “Like” us on Facebook:  p // / “Follow” us on Twitter: com/WeLearnIndiaWatch informative videos on Youtube: