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Chapter Twenty-One
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LO211: Explain what material
requirements planning (MRP) is.

LO212: Understand how the MRP system

is structured.

LO213: Analyze an MRP problem.

LO214: Evaluate and compare MRP lot-

sizing techniques.
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ERP a computer
MRP a means for
system that integrates
determining the number
application programs in
of parts, components, and
accounting, sales,
materials needed to
manufacturing, and the
produce a product
other functions in a firm

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The logic that ties production functions together
from a material planning and control view
A logical, easily understood approach to the
problem of managing the parts, components, and
materials needed to produce end items
How much of each part to obtain?
When to order or produce the parts?
Dependent demand drives the MPR system

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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 tested using the MRP program.

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Aggregate plan shows
overall quantities to
produce without
specifying type.

Week

MPS shows quantities

of each type, with
information about the
production time frame.

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 MRP

MRP
inputs
system

system
outputs

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Customers specific orders placed by
either external or internal customers

Aggregate production plan the firms

strategy for meeting demand in the
future, implemented through the master
production schedule (MPS)

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Contains the complete product
Often called the product structure
description, listing the materials,
file or product tree because it
parts, and components along with
shows how a product is put
the sequence in which the product
together.
is created.

The BOM shows

how the product is
put together.

Modular bill of materials is a

buildable item that can be Super bill of materials includes
produced and stocked as a items with fractional options.
subassembly.

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Product A Product A
the end item consists of
2 B and 3 C

Product C consists of
Product B 2 F, 5 G, and
consists of 4H
1 D and 4 E

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Higher levels (Iower
numbers) refer to end
products.

Lower levels (higher

numbers) refer to
components and raw
materials.
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Basic
information
describing
the item

Information
about part
availability

Additional
information
that may be
useful

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The requirements for end items are retrieved from
the master schedule.
These are referred to as gross requirements by the MRP program.

On-hand balance and schedule of orders are used to

calculate the net requirement.

Net requirements data are used to calculate when

orders should be received to meet these
requirements.

Planned order releases are generated by offsetting

to allow for lead time.

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Move to level 1 items.

Gross requirements for each level 1 item are

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

Net requirements, planned-order receipts, and

planned-order releases are calculated as
described in steps 24.

Repeat for all items in bill of materials.

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Ampere, Inc., produces a line of electric meters
installed in residential buildings.
Meters are of two basic types for different voltage
and amperage ranges.
Some subassemblies are sold separately for repair or for
changeovers.
The problem is to determine a production schedule
to identify each item, the period it is needed, and
the appropriate quantities.
The schedule is then checked for feasibility, and the
schedule is modified if necessary.

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Assume that required Trial Master Schedule
quantity must be
available during week 1
of each month.

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Without an order here,
inventory will drop below
To accommodate the lead the safety stock.
time, orders must be
released ahead of time.

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Without an order here,
inventory will drop below
To accommodate the lead the safety stock.
time, orders must be
released ahead of time.

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Total demand from planned
order releases of parent
items

Planned order release offset

by 3 periods due to lead time

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Determination of
lot sizes in an
MRP system is a
Economic order
complicated and Lot-for-lot (L4L)
quantity (EOQ)
difficult problem.
Lot sizes the
Lot Sizing
part quantities Strategies
issued in the
planned order
receipt and Least total cost Least unit cost
planned order (LTC) (LUC)
release sections of
an MRP schedule

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Produces exactly
Sets planned orders what is needed each
to exactly match the week with none
net requirements. carried over into
future periods.

Does not take into

Minimizes carrying account setup costs
cost. or capacity
limitations.

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EOQ was not
Calculate reorder designed for a
quantity based on system with discrete
EOQ. time periods such as
MRP.

The lot sizes

generated by EOQ
do not always cover
the entire number of
periods.

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 Lot
for-
Lot-

EOQ

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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 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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