Material Requirement

Planning
Dependent Demand
• For any product for which a schedule can be established,
dependent demand techniques should be used

Benefit of MRP
1.Better response to customer orders
2.Faster response to market changes
3.Improved utilization of facilities and labor
4.Reduced inventory levels
Dependent Demand
§ The demand for one item is related to the demand for another
item
§ Given a quantity for the end item, the demand for all parts and
components can be calculated
§ In general, used whenever a schedule can be established for an
item
§ MRP is the common technique
Dependent Inventory Model
Requirements`
• Effective use of dependent demand inventory models requires
the following
1.Master production schedule
2.Specifications or bill of material
3.Inventory availability
4.Purchase orders outstanding
5.Lead times
Master Production Schedule (MPS)

• Specifies what is to be made and when

• Must be in accordance with the aggregate production plan
• Inputs from financial plans, customer demand, engineering,
supplier performance
• As the process moves from planning to execution, each step
must be tested for feasibility
• The MPS is the result of the production planning process
The Planning Process CHAPTER 14 | MATERIAL REQUIREMENTS PL ANNING (MRP) AND ERP 6

Production
Figure 14.1
Marketing Finance
Capacity Customer demand Cash flow The Planning Process
Inventory

Supply Chain Human Resources

Procurement Sales & Operations Planning Staff planning
Supplier performance Generates an aggregate plan

Master production
schedule

Change master
production
Material schedule?
requirements plan

Schedule and
execute plan

Master Production Schedule

n schedule is established in terms of specific products. Figure 14.2 shows the
on schedules for three stereo models that flow from the aggregate plan for a
Aggregate Production Plan
amplifiers.

n Months January February

Total amplifiers 1,500 1,200

tion Weeks 1 2 3 4 5 6 7 8
240-watt amplifier 100 100 100 100
pe and
be 150-watt amplifier 500 500 450 450
75-watt amplifier 300 100

s the Basis for Development of the Master Production Schedule

Master Production Schedule (MPS)

Can be expressed in any of the following terms:

1) A customer order in a job shop (make-to-order) company
2) Modules in a repetitive (assemble-to-order or forecast)
company
3) An end item in a continuous (stock-to-forecast) company
 Bills of Material (BOM)

§ List of components, ingredients, and

materials needed to make product
§ Provides product structure
§ Items above given level are called
parents
§ Items below given level are called
components or children
BOM Example
Purchase Orders Outstanding
• A by-product of well-managed purchasing and inventory control
department
• Outstanding purchase orders must accurately reflect quantities
and scheduled receipts
Lead Times for Components
§ The time required to purchase, produce,
or assemble an item
§ For production - the sum of the move, setup,
and assembly or run times
§ For purchased items - the time between the
recognition of a need and when its available
for production
Time-Phased Product| StructureCHAPTER 14 MATERIAL REQUIREMENTS PL ANNING (MRP) AND ERP 605

Start production of D
Must have D and E Figure 14.3
completed here so
production can Time-Phased Product
begin on B Structure
1 week
D 2 weeks to
produce

B
2 weeks
E
A
STUDENT TIP
2 weeks 1 week This is a product structure on
E its side, with lead times.
2 weeks 1 week
G C
3 weeks
F
1 week
D

1 2 3 4 5 6 7 8
Time in weeks
 and we can illustrate a small one by hand. A master production schedule, a bill of material, Gross material requirements
inventory and purchase records, and lead times for each item are the ingredients of a material plan
requirements planning system (see Figure 14.4). A schedule that shows the total
Once these ingredients are available and accurate, the next step is to construct a gross mate- demand for an item (prior to sub-

MRP Structure
rial requirements plan. The gross material requirements plan is a schedule, as shown in Example 2.
It combines a master production schedule (that requires one unit of A in week 8) and the time-
phased schedule (Figure 14.3). It shows when an item must be ordered from suppliers if there
traction of on-hand inventory and
scheduled receipts) and (1) when
it must be ordered from suppliers,
or (2) when production must be
is no inventory on hand or when the production of an item must be started to satisfy demand started to meet its demand by a
for the finished product by a particular date. particular date.

Data Files Output Reports Figure 14.4

MRP by Structure of the MRP System
Bill of material Master period report
production schedule

MRP by
date report

Lead times
(Item master file) Planned order
STUDENT TIP
report MRP software programs are
popular because manual
Inventory data approaches are slow and error
Purchase advice
Material prone.
requirements
planning
programs
Exception reports
(computer and
Purchasing data software) Order early or late
or not needed

Order quantity too

small or too large
Determining Gross Requirements
§ Starts with a production schedule for the end item - 50 units of Item A in
§ week 8
§ Using the lead time for the item, determine the week in which the order
should be released - a 1 week lead time means the order for 50 units
should be released in week 7
§ This step is often called "lead time offset" or "time phasing"
§ From the BOM, every Item A requires 2 Item Bs - 100 Item Bs are required
in week 7 to satisfy the order release for Item A
§ The lead time for the Item B is 2 weeks - release an order for 100 units of
§ Item B in week 5
§ The timing and quantity for component requirements are determined by
the order release of the parents)
Determining Gross Requirements
• The process continues through the entire BOM one level at a
time - often called "explosion"
• By processing the BOM by level, items with multiple parents are
only processed once, saving time and resources and reducing
confusion
• Low-level coding ensures that each item appears at only one
level in the BOM
Gross Requirements Plan
Net Requirements Plan
Gross Requirements Schedule