Material Requirement Planning (MRP)

Contributors to MRP• Joseph Orlicky

• George Plossl

• Oliver Wight

• American Production and Inventory Control Society

What is MRP?• Computerized Inventory Control

• Production Planning System

• Management Information System

• Manufacturing Control System

When to use MRP• Job Shop Production

• Complex Products

• Assemble-to-Order Environments

• Discrete and Dependent Demand Items

What can MRP do?

• Reduce Inventory Levels• Reduce Component

Shortages• Improve Shipping

Performance• Improve Customer

Service• Improve Productivity• Simplified and Accurate

Scheduling

• Reduce Purchasing Cost• Improve Production

Schedules• Reduce Manufacturing

Cost• Reduce Lead Times• Less Scrap and Rework• Higher Production

Quality

What can MRP do?• Improve

Communication• Improve Plant

Efficiency• Reduce Freight Cost• Reduction in Excess

Inventory

• Reduce Overtime• Improve Supply

Schedules• Improve Calculation of

Material Requirements• Improve Competitive

Position

Three Basic Steps of MRP

• Identifying Requirements

• Running MRP – Creating the Suggestions

• Firming the Suggestions

Step 1: Identifying the Requirements

• Quantity on Hand

• Quantity on Open Purchase Order

• Quantity in/or Planned for Manufacturing

• Quantity Committed to Existing Orders

• Quantity Forecasted

Step 1: Important InformationMRP is…..

• Company Sensitive

• Location Sensitive

• Date Sensitive

Step 2: Running MRP – Creating the Suggestions

• Critical Items

• Expedite Items

• Delay Items

Step 3: Firming the Suggestions

• Manufacturing Orders

• Purchasing Orders

• Various Reports

Overview of the MRP System

Product Structure

File

Master Production Schedule

Inventory Master File

Material Requirements

Planning

Manufacturing Orders

Purchase Orders

Various Reports

MRP Inputs• Product Structure File

• Master Production Schedule

• Inventory Master File

Product Structure File

• Bill of Materials

Master Production Schedule

• Schedule of Finished Products

• Represents Production, not Demand

• Combination of Customer Orders and Demand Forecasts

• What Needs to be Produced

Inventory Master File• On-Hand Quantities

• On-Order Quantities

• Lot Sizes

• Safety Stock

• Lead Time

• Past-Usage Figures

MRP Process• Schedules the Production of all items using

an MRP Matrix

Item: Low-Level Code:

Lot Size: Lead Time: PD 1 2 3 4 5Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirements

Planned Order Receipts

Planned Order Releases

MRP Matrix

Terms Defined

• Item – name or number for the item being scheduled

• Low-Level Code – the lowest level of the item on the product structure file

• Lot Size – order multiples of quantity• Lead Time – the time from when an order is

placed to when it is received• PD – Past Due Time Bucket, orders behind

schedule

Terms Defined

• Gross Requirements – demand for an item by time period

• Scheduled Receipts – material already ordered• Projected on Hand – expected ending inventory• Net Requirements – number of items to be

provided and when• Planned Order Receipts – net requirements

adjusted for lot size• Planned Order Releases – planned order receipts

offset for lead times

Example of the MRP ProcessItem: A Low-Level Code: 1

Lot Size: 25 Lead Time: 1PD 1 2 3 4 5

Gross Requirements 10 15 25 25 30

Scheduled Receipts 25

Projected on Hand 20

Net Requirements

Planned Order Receipts

Planned Order Releases

Example of the MRP ProcessItem: A Low-Level Code: 1

Lot Size: 25 min Lead Time: 1PD 1 2 3 4 5

Gross Requirements 10 15 25 25 30

Scheduled Receipts 25

Projected on Hand 20 10 20 20 20 15

Net Requirements 5 5 10

Planned Order Receipts 25 25 25

Planned Order Releases 25 25 25 30 25

MRP Outputs• Manufacturing Orders

• Purchasing Orders

• Various Reports

Hubbell Lighting Case

• Manufactures Industrial Lighting Products

• Good-Quality Products

• Poor at Meeting Due Dates

• Work is Specialized for Each Customer

• Job Shop Environment

• Complex Products

Hubbell Lighting Case

Before MRP Implementation

• Less than 75% of orders completed on time

After MRP Implementation

• 97% of orders completed on time

• 2% of orders completed with 1 to 2 days after due date

Summary of MRPMRP is a…..• Computerized Inventory Control• Production Planning Systemthat…..• Schedules Component Items as Neededwhich will…..• Track Inventory and…..• Help you in many other aspects of business