Understanding Material Requirements Planning (MRP): A Comprehensive Guide

CHAPTER 14: Material Requirements Planning (MRP)

Independent vs. Dependent Demand

Independent Demand

Finished goods, such as computers, have independent demand, meaning their demand is uncertain and influenced by external factors.

Dependent Demand

Components of finished products, like computer parts, have dependent demand, meaning their demand is certain and directly related to the demand for the finished product.

What is Material Requirements Planning (MRP)?

Material Requirements Planning (MRP) is a dependent demand technique that uses a bill-of-material, inventory data, expected receipts, and a master production schedule to determine the materials and components needed to produce finished goods.

Benefits of MRP

• Better response to customer orders
• Faster response to market changes
• Improved utilization of facilities and labor
• Reduced inventory levels

Key MRP Concepts

Master Production Schedule (MPS)

The Master Production Schedule (MPS) is a primary input in MRP, specifying what finished goods are to be produced and when.

Aggregate Planning

Aggregate planning involves developing a long-term output and resource plan in aggregate units.

Disaggregation

Disaggregation is the process of breaking down aggregate plans into short-term operational plans, forming the basis for weekly and daily schedules and resource requirements.

Bill of Materials (BOM)

The Bill of Materials (BOM) is another primary input of MRP, listing all components, their descriptions, and quantities needed to make one unit of a product.

Product Structure Tree

A Product Structure Tree visually depicts the BOM requirements, showing all components organized by levels.

MRP Explosion

MRP explosion uses the logic of dependent demand to calculate the quantity and timing of orders for all subassemblies and components required for finished goods production.

Lot Sizing Techniques

Lot-for-Lot (LFL)

Lot-for-Lot (LFL) is an ordering schedule that covers the gross requirements for each week.

Fixed Order Quantity (FOQ)

Fixed Order Quantity (FOQ) uses a fixed order size for every order or production run.

Periodic Order Quantity (POQ)

Periodic Order Quantity (POQ) orders a quantity equal to the gross requirement quantity in one or more predetermined time periods, minus the projected on-hand quantity from the previous period.

MRP Terminology

• Gross Requirements: Total expected demand
• Schedule Receipts: Open orders scheduled to arrive
• Projected On Hand: Expected inventory at the beginning of each time period
• Net Requirements: Actual amount needed in each time period
• Planned-Order Receipts: Quantity expected to be received at the beginning of the period
• Planned-Order Releases: Planned amount to order in each time period, offset by lead time

MRP Systems

Regenerative System

A regenerative system updates MRP records periodically and is best suited for stable systems with 85% to 90% data accuracy.

Net-Change System

A net-change system updates MRP records continuously and is best suited for systems with frequent changes and 95% data accuracy.

MRP Reports

Primary Reports

1. Planned Orders: Schedule of future order amounts and timing
2. Order Releases: Authorization for executing planned orders
3. Changes: Revisions to due dates, order quantities, or cancellations

Secondary Reports

1. Performance-Control Reports: Evaluation of system operation, including deviations and cost information
2. Planning Reports: Data for assessing future material requirements
3. Exception Reports: Data on major discrepancies