Lecture Principle of inventory and material management - Lecture 9

Lecture 9
Materials Requirements Planning

Books
•
Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming 
College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. 
Clive, P.E., CFPIM, Fleming College
•
Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, 
N.Y.: McGraw­Hill/Irwin.
•
Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of 
Business, Rollins College, Prentice Hall


Objectives

•
•
•
•
•

Material Requirement Planning
Nature of Demand
Inputs to MRP
Bill of Material
Planned Orders

Material Requirements Planning

•

•

•

Material Requirements Planning is a system to calculate 
requirements for dependent demand items
It establishes a schedule (priority plan) showing the 
components required at each level of the assembly and, based 
on lead times, calculates the time when these components will 
be needed
It is a system to avoid missing parts for the end item


Material Requirements Planning Process

•

We need to determine
–
–
–

•

What to order
How much to order

When to order

This will involve
–
–
–
–

Lead times
Bills of material
Inventory Status
Planning data


Nature of Demand
•

Two Types of Demand
–

Independent
•

•

–

Is not related to the demand for any other product and must be 
forecast
Master production schedule (MPS) items are independent 

demand items

Dependent
•
•

Is directly related to other items or end items
Such demand should be calculated and need not and should 
not be forecast


Nature of Demand
Independent Demand
(Forecast)

Table

Legs
(4)

Ends
(2)

Sides
(2)

Item
#206

Item

#433

Item
#711

Top
(1)
Item
#025

Hardware Dependent Demand
Kit (1)
(Calculated)
Item
#822

If you have an order for 23 Tables, what components
would you need to produce them?


Objectives of MRP
•

Two Major Objectives
– Determine Requirements
•
•
•
•

–

What to order
How much to order
When to order
When to schedule delivery

Keep Priorities Current
•

It must be able to add and delete, expedite, delay, and 
change orders based upon present priorities


Linkages with Other Manufacturing Planning 
and Control Functions
Business
Plan
Production
Plan

Planning

MPS
MRP
PC and
Purchasing

The MRP is driven by
the MPS; it is concerned

with the components
needed to make the
end items.
•
The MRP in turn drives,
or is input to, production
control (PC) and purchasing
•

Execution


Inputs to the  MRP System

•

MPS
Inventory
Status

MRP

Four Major Inputs:
–

Bill of
Material

–
–

–

Planning
Data

Master Production 
Schedule
Inventory Records
Planning Data
Bills of Material


Inputs to the  MRP System

•

Master Production Schedule (MPS)
–

•

The MPS provides information on planned and scheduled 
orders for end items (how much is wanted and when)

Inventory Status
–

Inventory status provides information on what is already 
available. Inventory records include the status of each item, 
including amounts on order and on hand and the location

Inputs to the  MRP System

•

Bills of Material
–

•

Planning Data
–

•

Bills of material describe components and the quantity of each needed to 
make one unit
Planning data include lot size, lead time, scrap factors, yield factors, and 
safety stock

The Computer
–

Computers are needed because they are fast , accurate, and have the 
ability to store and manipulate data and produce information rapidly


Bills of Material

Bill of Material

“a listing of all the subassemblies, intermediates, parts, and raw materials 
that go into making the parent assembly showing the quantities of each 
required to make an assembly”
APICS Dictionary, 8th edition, 1995
•

•

The bill of material shows all the parts required to make one of 
the item
Each part or item has only one part number


Bills of Material

•

Parent–Component Relationship
–

An assembly is considered a parent, and the items that comprise it are 
called its component items.

Parent

Table

Legs

(4)

Ends
(2)

Sides
(2)

Top
(1)

Hardware
Kit (1)

Item
#206

Item
#433

Item
#711

Item
#025

Item
#822

Component

Bills of Material

•

•
•
•

The multilevel bill is made up of subassemblies.  The 
subassemblies reflect the way manufacturing plans to build the 
product.
The lowest items on the bill are usually purchased parts.
All parts and subassemblies have unique numbers.
By convention, the final assembly is considered level zero. 
Levels down the bill are numbered consecutively.


Bills of Material

•

•

•

The multilevel bill is a collection of single­level bills. Each 
single­level bill shows the parts to make one parent.
To reduce storage space and to make maintenance easier, the 

computer stores single­level bills only.
Items can be both parents of components and components of 
other parents.


Bills of Material

•

Low­Level Coding and Netting ­ A component may reside on 
more than one level in a bill of material
–

–

–

The low­level code is the lowest level on which a part resides in all bills 
of material. Every part has only one low­level code.
Low­level are determined by starting at the lowest level of a bill of 
material and, working up, recording the level against the part. If a part 
occurs on a higher level, its existence on the lower level has already 
been recorded.
Once the low­level codes are obtained, the net requirements for each 
part can be calculated.


Bills of Material

•

Uses for Bills of Material
–
–
–
–
–
–
–
–

•

Product Definition
Engineering Change Control
Service Parts
Planning
Order Entry
Manufacturing
Costing
Etc.  

Maintaining bills of material and their accuracy is extremely 
important


Bills of Material

List of components, ingredients, and
materials needed to make product

þ
Provides product structure
þ

Items above given level are called
parents
þ
Items below given level are called
children
þ


BOM Example
Level

Product structure for “Awesome” (A)

0

A

E(2)

2

3

12” Speaker kit w/
C(3) Std.
amp-booster

B(2) Std. 12” Speaker kit

1

D(2)

F(2) Std. 12” Speaker

E(2)
Packing box and
installation kit of wire,
bolts, and screws

booster assembly

G(1)

D(2)

Amp-booster
12” Speaker

12” Speaker


BOM Example
Level

Product structure for “Awesome” (A)

0

A

Part B: 2 x number of As =
(2)(50) =
100
12” Speaker 150
kit w/
PartStd.
C: 12”3Speaker
x number
(3)(50)
B(2)
kit of As =
C(3) =Std.
1
amp-booster
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
Part E:
E(2) 2 x number of Bs
E(2)
F(2) Std. 12” Speaker
2
booster
+ 2 x number of Cs = (2)(100) + (2)(150)
= assembly
500

Part F:
2 x number
of Cs =
(2)(150) =
300
Packing box and
numberkitofofFs
=
(1)(300)
300
wire,
G(1) =
D(2)
3 D(2) Part G: 1 xinstallation
bolts, and screws

Amp-booster
12” Speaker

12” Speaker


Bills of Material
þ

Modular Bills
Modules are not final products but
components that can be assembled
into multiple end items
þ

Can significantly simplify planning and
scheduling
þ


Bills of Material
þ

Planning Bills (Pseudo Bills)
Created to assign an artificial parent to
the BOM
þ
Used to group subassemblies to
reduce the number of items planned
and scheduled
þ
Used to create standard “kits” for
production
þ


Bills of Material
þ

Phantom Bills
Describe subassemblies that exist only
temporarily
þ
Are part of another assembly and
never go into inventory

þ

þ

Low-Level Coding
Item is coded at the lowest level at which
it occurs
þ
BOMs are processed one level at a time
þ


Lead Times, Exploding, and Offsetting
A
LT: 2 wk
LT: 1 wk
•

•

•

D

B

LT: 1 wk
C

E

LT: 1 wk

LT: 1 wk

Lead time:  The time from when an order is placed until the part is 
ready for use. 
Exploding:  Multiplying the parent requirements by the usage 
quantity through the product tree
Offsetting:  Placing the requirements in their proper time 
  periods 
based on lead times


Planned Orders

•

•

•

Planned Order Receipt
– That quantity planned to be received at a future date as a 
result of a planned order release.
Planned Order Release
– Planned order releases are just planned; they have not been 
released. Orders for material should not be released until the 
planned order release date arrives.
The planned order release of the parent becomes the gross 

requirement of the component.