McGraw-Hill/Irwin

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Chapter 18

Material Requirements Planning

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Learning Objectives

1. Describe what MRP is and where it is best applied.

2. Understand the source of the information used by the system.

3. Demonstrate how to do an MRP “explosion.”

4. Explain how order quantities are calculated in MRP systems.

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Enterprise Resource Planning and Material Requirements Planning

• Enterprise resource planning (ERP): a computer system that integrates application programs in accounting, sales, manufacturing, and the other functions in a firm

• Materials requirements planning (MRP): 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

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Master Production Scheduling

• The master schedule deals with end items and is a major input to the MRP process

• All production systems have limited capacity and limited resources– The aggregate plan provides the general range of

operation, the master scheduler must specify exactly what is to be produced

• To determine an acceptable feasible schedule to be released to the shop, trial master production schedules are run through the MRP program

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Demand for Products

1. Customers who have placed specific orders

– Generated by sales personnel– Orders carry promised delivery dates– No forecasting of these orders

2. Forecasted demand– Normal independent-demand sales

3. Demand for parts and components– Spares and repair

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Bill of Materials

• Bill of materials (BOM): contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created– One of the three main inputs to the MRP

program

• Often called the product structure file or product tree because it shows how a product is put together

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MRP Computer Program

• MRP program uses information from:– Inventory records– Master schedule– Bill of materials

• Process of calculating exact requirements for each item is referred to as the explosion process– Work from top level down in BoM– Consider on-hand balances and scheduled

orders

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MRP Explosion Process

1. The requirements for end items are retrieved from the master schedule• These are referred to as “gross

requirements” by the MRP program

2. Uses on-hand balance with schedule of orders to calculate the “net requirements”

3. Using net requirements, it calculates when orders should be received to meet these requirements

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MRP Explosion Process Continued

4. Find a schedule for when orders are actually released• To account for lead time

5. Move to level 1 items6. Gross requirements for each level 1 item are

calculated from the planned-order release schedule for the parents of each level 1 item

7. Net requirements, planned-order receipts, and planned-order releases are calculated as described in steps 2–4

8. Repeat for all items in bill of materials

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Economic Order Quantity

• Calculate reorder quantity based on EOQ

• EOQ was not designed for a system with discrete time periods such as MRP

• The lot sizes generated by EOQ do not always cover the entire number of periods

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Least Total Cost

• Least total cost method (LTC): a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal

• Influenced by the length of the planning horizon

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Least Unit Cost

• Least unit cost method: a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost

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