Material Requirements

Planning
Dr. Everette S. Gardner, Jr.
MRP 2

























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Time
LT LT
R
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LT
R
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LT
Order point system with dependent demand
MRP 3
































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Time
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The MRP approach
MRP 4
The simultaneous probability
problem
When components are ordered independently with an order point
system, the probability that all will be in stock at the same time is
much lower than the probabilities for individual components

Computation:
Let P
n
= Prob. that n components are
in stock simultaneously

S
i
= Prob. of stockout on one
order cycle for component i

Then
P
n
= S
1
x S
2
x S
3
S
n


MRP 5
The simultaneous probability
problem (cont.)

Example:

End Item




S
1
= .9 S
2
= .9 S
3
= .9


P
3
= .9 x .9 x .9 =

= Prob. that all 3 components will be available at any given time to
build the end item
1 2 3
.729
MRP 6
Probabilities of simultaneous
availability of components
Number of Service level
component items 90% 95%
1 .900 .950
2 .810 .902
3 .729 .857
4 .656 .814
5 .590 .774
6 .531 .735
7 .478 .698
8 .430 .663
9 .387 .630
10 .348 .599
15 .206 .463
20 .121 .358
25 .071 .277
MRP 7
Mfg. orders
















Demand
forecasts and
customer orders
Aggregate
planning/
master
scheduling
Product
design
changes
Inventory
transactions
Bill
of
materials
MRP
system
Inventory
records
Purchase
orders
Capacity report

Performance/
exceptions
Detailed
scheduling
system
Purchasing
dept.
MRP inputs and outputs
MRP 8
Product tree vs. indented parts list
Product tree

A Level 0


B(2) C(4) Level 1


D(1) E(3) D(2) F(1) G(3) Level 2
MRP 9
Product tree vs. indented parts list
(cont.)
Indented parts list

A
B(2)
D(1)
E(3)
C(4)
D(2)
F(1)
G(3)

MRP 10
Week
Lead
1 2 3 4 5 6 7 8 9 time




















Quiz: MRP plan to produce 10 units
of A due in week 9
Gross Rqmts.
Planned order rls.



















1
Gross Rqmts.
Planned order rls.



















2
Gross Rqmts.
Planned order rls.



















3
Gross Rqmts.
Planned order rls.



















3
Gross Rqmts.
Planned order rls.



















2
Gross Rqmts.
Planned order rls.



















3
Gross Rqmts.
Planned order rls.



















4
A
B
C
G
F
E
D
MRP 11
Problems in requirements
computations
Product structure

Recurring requirements within the planning
horizon

Multilevel items

Rescheduling open orders
MRP 12
Product structure
Bills of material are hierarchical with distinct levels

To compute requirements, always proceed down bill of
materials, processing all requirements at one level before
starting another
MRP 13
Product structure (cont.)
Example:
Level Inventory O.H.
Truck 0 0

A. Transmission (1) 1 2

B. Gearbox (1) 2 15

C. Gear (1) 3 7

D. Forging Blank (1) 4 46

Suppose we are to produce 100 trucks. What are the net
requirements for each component?
MRP 14
Recurrence of requirements within
the planning horizon
The same item may be required for several different lots within
the planning horizon always process one lot entirely, level by
level, before starting the next.

Example: One lot of 12 trucks, followed by 2nd lot of 100
Lot 1 Lot 2
Level 1: Gross requirements 12 100
MRP 15
Multilevel items
The same item may appear at different levels on one or more BOMs
result is multiple retrievals of same record to update system.

Examples:

1

2

3

4
X
A
Y
A
Z
A
A
MRP 16
Multilevel items (cont.)
Solution: Low-level coding. Lowest level an item appears is coded
on inv. record. Processing delayed until that level reached.


1

2

3

4
X
A
Y
A
Z
A
A
MRP 17
Rescheduling open orders
Tests for open order misalignment:
1. Are open orders scheduled for periods following the period in
which a net requirement appears?

2. Is an open order scheduled for a period in which
gross requirement inv. O. H. at end of preceding period?

3. Is lead-time sufficient?
MRP 18
Rescheduling open orders (cont.)
Example:
Week
1 2 3 4 5 6







Most MRP systems make such schedule changes automatically.


Gross requirements

30

5

10

10

10

Scheduled receipts

20

20

On hand

27

-3

12

12

22

12

2
MRP 19
Tactical questions in MRP
Regeneration vs. net change

Lot sizing

Safety stocks
MRP 20
Regeneration vs. net change
Regeneration
Complete replanning of requirements and update of inventory
status for all items

High data processing efficiency

Usually initiated by weekly update of master schedule

Net change
Daily update based on inventory transactions

More responsive to changing conditions

Requires more discipline in file maintenance
MRP 21
Lot sizing implications in MRP
The load profiles at work centers in the system depend on the lot
sizing rules used

Load profiles determine:
undertime / overtime
leadtimes

Example:
Lot size Lot size
Pd. Demand Rule 1 Rule 2
1 5 5 20
2 15 15 0
3 15 15 20
4 5 5 0
(Assume 1 unit requires 1 machine hour.)
MRP 22
Lot sizing implications in MRP (cont.)



20 20

15 15

10 10

5 5

0 0


Load profile Load profile
Rule 1 Rule 2
M
a
c
h
i
n
e

h
r
s
.

1 2 3 4 1 2 3 4
MRP 23
Lot sizing techniques used in MRP
systems
Lot-for-lot (L4L) most used

Economic order quantity (EOQ)

Period order quantity (POQ)
MRP 24
Lot-for-lot (L4L) example





(Assume 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
MRP1.xls
MRP 25
EOQ example
Setup cost, S = $100
Unit price, C = $50
Holding costs, H
R
= .24 per annum
H
P
= .02 per period
Annual demand, D = 200
Q = (2DS / CH
R
)
1/2
= 58





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
MRP 26
Period order quantity example
Technique:
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 = 58
Number of periods in one year = 12
D = 200
200 / 58 = 3.4 (orders per year)
12 / 3.4 = 3.5 (ordering interval)
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
MRP 27
Safety stocks in MRP systems
Need for safety stocks:
Variations in demand due to end-item forecast errors and
inventory errors
Variations in supply both lead-times and quantities

Since demand is not random, traditional statistical
techniques do not apply.

Options to provide safety factors:
Fixed quantity buffer stocks
Safety lead-time
Increase gross requirements
MRP 28
Safety stocks in MRP systems (cont.)
Fixed quantity buffer stocks
Good rule of thumb: Set buffer = max. demand likely in a single
period
Never generate order solely to replenish buffer stocks

Safety time method
Simply order early
Distorts LTs and priorities
Better than buffer stocks for items with infrequent demand
Also better for purchases outside company

Increase in gross requirements
Should be done at end item level only so that
Components available in matched sets
Safety stocks are not duplicated at different levels