CHAPTER 16
MATERIALS REQUIREMENTS PLANNING
Teaching Notes
This chapter describes MRP, one of the standard topics in operations management today.
The basic elements of any MRP system and the different uses of the term MRP are described
including the evolution to ERP. The chapter also explains why MRP systems are needed and
why they are difficult to implement in practice. After reading the chapter the student should have
a grasp of not only what MRP is, but also how it can be successfully used.
When I teach this chapter I start by describing the different possible definitions of MRP.
In this connection, I find Figure 16.1, or something like it, to be a useful aid. Then I put a parts
explosion example on the overhead PowerPoint like Table 16.4. This example brings out
computational questions and also helps to illustrate some of the concepts behind MRP. I finish
by discussing issues related to MRP implementation and its impact on manufacturing and service
companies.
In teaching this chapter you may find Plossl’s (1994) book on Orlicky’s approach to MRP
in the original Orlicky (1975) book to be useful references. The other good references are the
book by Toomey (1996) and the article by Rondeau and Lewis (2001) “…from reorder point to
ERP”.
Answers to Questions
1.
Independent demand inventories exist to provide customer service. These inventories
should be managed by a replenishment philosophy to constantly keep a supply of the
product on hand. When independent demand inventories drop to a low level they are
replenished.
Dependent demand inventories exist for a different reason--to support manufacturing
operations. These inventories should be managed by a requirements philosophy. More
inventory is ordered only when dictated by the needs of the master production schedule.
2.
Raw materials and work-in-process inventories should be based on the master schedule
which reflects future production requirements rather than past demand history. Demand
history reflects only past usage, and is usually not a reliable indicator of future
manufacturing requirements.
3.
Either of them could be correct since lead time depends on priority. The vendor is
probably quoting an average or typical lead time of ten weeks. If your order is given high
enough priority by the vendor, it may be possible to get it in only three weeks.
16 - 1
4.
Historically, inventory was controlled by replenishment methods which relied on
sophisticated mathematical models. MRP uses very simple mathematics but complicated
information processing which requires data accuracy, massive data manipulation, and
behavioral changes in the users. Thus, MRP requires a change in orientation away from
sophisticated mathematical analysis and toward information systems management and
behavioral issues.
5.
A replenishment philosophy is reflected by an order point or target inventory system
which replenishes the stock when it runs low. This approach is necessary since the
company cannot control customer demand.
On the other hand, a requirements philosophy is based on the procurement of inventory to
support the master production schedule. Stock is not automatically replenished when it
runs low, only when it is needed to meet future requirements. Since the company
controls the master production schedule it also controls the demand for dependent
demand inventories.
6.
It is difficult to apply the ABC principle to manufacturing component inventories,
because no component is of lesser importance than any other. For example, an expensive
machine, which is being assembled, might be delayed for shipment due to lack of a C
item just as for the lack of an A item. In this sense all components are critical for
completion of the manufacturing task.
7.
Enough safety stock should be carried to cover uncertainties in demand and lead times
and still meet service level goals. Some safety stock of finished goods may be carried to
act as a buffer between the customer and the master production schedule. Safety stock of
partly assembled components may be carried so that finished products can be quickly
assembled, and safety stock of raw materials may be carried as a buffer between vendors
and the company.
If the master production schedule is fixed and lead times are constant, no safety stock is
needed. The role of safety stock is, therefore, to absorb variations in the master
production schedule or in manufacturing or purchasing lead time.
8.
The potential effects of an inflated master production schedule are unrealistic due dates
for components, perhaps straining capacity, and additional inventory which is not needed.
These effects can result in an MRP system which has low data accuracy and low
usefulness because the results of the system are not believable.
9.
The advantages of cycle counting over an annual physical inventory are:
- more accurate inventory records
- possibly less cost and effort
- no loss of production due to plant closure for inventory counting
- less expediting and stock chasing to locate lost parts
- more accurate storeroom locations of parts
- better physical security of the stockroom
16 - 2
10.
A shop floor control system is needed for all manufacturing systems except those with a
very simple product line, those with a short production lead time or those with a repetitive
master schedule. In the case of a simple product line, e.g., a few products, the progress of
manufacturing can be easily determined. Likewise, if the manufacturing lead time is
short, there is not much work-in-process inventory on the shop floor and therefore little
need for a shop floor control system. When the schedule is repetitive, in JIT systems,
shop floor control is managed by means of a visual pull system.
11.
The best financial control system stems from control of the physical flow of materials,
people, and capacity in manufacturing. Financial control is the same as physical control
except in different units of measure--dollars instead of physical units. While it is possible
to establish financial control in aggregate dollar terms without physical control, the
resulting financial control is not fully effective.
12.
The company president may be right. The company should use MRP only if the potential
benefits exceed the costs of installation and operation. In many cases, however, very
small companies can receive sufficient benefits relative to cost -- due to the low cost of
PC-based MRP software.
13.
The loop should be closed unless the company has excess capacity or capacity can be
easily adjusted. Otherwise, the master production schedule may be infeasible with
respect to capacity, and as a result order priorities will be wrong.
14.
a.
Hotel. MRP could be used to explode the requirements for rooms into labor and
materials needed. Each room generates requirements for maintenance, maid
service, food service, food, linens, etc.
b.
Legal Office. The demand for various types of legal services could be exploded
into labor needed including lawyers' time, secretarial time, research time, etc.
These requirements could be time phased based on the actual times required for
delivery of services.
Answers to Problems
1.
Gross Requirements
On-hand/Scheduled Receipts
Net requirements
Planned Order Releases
1
2
80
50
270
16 - 3
Week
3
4
100
300
-200
270
5
200
200
2.
a.
Materials Plan:
NAME: *****************
DATE: 18-Dec-02
SECT:
*********
CHAPTER 16, PROBLEM 2
MATERIALS PLAN
OLD HICKORY FURNITURE COMPANY
WEEK
*****PART*****
---------- -------------------CHAIR
GROSS REQUIREMENTS:
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- -------------------LEG
GROSS REQUIREMENTS:
ASSEMBLY SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- -------------------BACK
GROSS REQUIREMENTS:
ASSEMBLY SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- -------------------SEAT
GROSS REQUIREMENTS:
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- -------------------RAILS
GROSS REQUIREMENTS:
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- -------------------LEGS
GROSS REQUIREMENTS:
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
---------- --------------------
1
2
------- ------0
0
0
0
100
100
0
0
0
0
------- ------0
0
0
0
50
50
0
0
0
350
------- ------0
0
0
0
25
25
0
0
0
0
------- ------0
0
0
0
40
40
0
0
360
300
------- ------0
1400
0
0
100
100
0
1300
1300
1200
------- ------0
1400
0
0
150
150
0
1250
1250
1200
------- -------
16 - 4
3
------0
0
100
0
0
------0
0
50
0
300
------0
0
25
0
375
------0
0
40
0
0
------1200
0
0
1200
0
------1200
0
0
1200
0
-------
4
5
------- ------0
500
0
0
100
100
0
400
400
300
------- ------400
300
0
0
50
0
350
300
0
0
------- ------400
300
0
0
25
0
375
300
300
0
------- ------400
300
0
0
40
0
360
300
0
0
------- ------0
0
0
0
0
0
0
0
0
0
------- ------0
0
0
0
0
0
0
0
0
0
------- -------
6
------300
0
0
300
0
------0
0
0
0
0
------0
0
0
0
0
------0
0
0
0
0
------0
0
0
0
0
------0
0
0
0
0
-------
WEEK
*****PART* ****
1
2
3
4
5
6
TOP
GROSS REQUIREMENTS:
0
0
375
300
0
0
SCHEDULED RECEIPTS
0
0
0
0
0
0
PROJECTED ON HAND
30
30
30
0
0
0
NET REQUIREMENTS
0
0
345
300
0
0
PLAN. ORDER RELEASES
345
300
0
0
0
0
---------- -------------------- ------- ------- ------- ------- ------- ------SPINDLE GROSS REQUIREMENTS:
0
0
1500
1200
0
0
SCHEDULED RECEIPTS
0
0
0
0
0
0
PROJECTED ON HAND
80
80
80
0
0
0
NET REQUIREMENTS
0
0
1420
1200
0
0
PLAN. ORDER RELEASES
1420
1200
0
0
0
0
---------- -------------------- ------- ------- ------- ------- ------- ------CAPACITY PLAN FOR ASSEMBLY
1
2
3
4
5
6
---------- -------------------- ------- ------- ------- ------- ------- ------CHAIR ASSEMBLY HOURS
0
0
0
800
600
0
LEG ASSEMBLY HOURS
0
350
300
0
0
0
BACK ASSEMBLY HOURS
0
0
375
300
0
0
---------- -------------------- ------- ------- ------- ------- ------- ------TOTAL ASSEMBLY HOURS
0
350
675
1100
600
0
3.
b.
Seats, rails, legs, tops, and spindles should be ordered immediately.
c.
The 1000 hour capacity limit in assembly will cause problems in week 4, since the
assembly time required to meet the plan is 1100 hours. Possible solutions include
overtime, splitting lots so that some work is done in week 3 or 5 instead, or
smoothing the master schedule so that there aren't so many assembly hours
required during week 4.
d.
Using the assumptions in part(c), Changing the master schedule to 300 chairs in
week 5 and 400 chairs in week 6 balances the assembly hours required so that
now 150 hours are required in week 2, 575 in week 3, and 800 each in weeks 4
and 5. This plan would solve the problem in week 4 in assembly.
a.
Product Structure
A
┌───────────┴───────────┐
B
C
┌─────┴──────┐
┌─────┴─────┐
D(2)
E
D
F
16 - 5
b.
To produce 200 units of A requires ordering 600 of D, 200 of E, and 200 of F. It
requires assembling 200 of B, 200 of C, and 200 of A from the component parts.
4.
a.
NAME : *****************
DATE : 18-Dec-02
SECT : **************
CHAPTER 16, PROBLEM 4
MATERIALS PLAN FOR PRODUCT A
PART
------ -------------------A
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
------ -------------------B
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
------ -------------------C
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
------ -------------------D
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
PROJECTED ON HAND
NET REQUIREMENTS
PLAN. ORDER RELEASES
------ --------------------
1
2
---------- ------0
0
0
0
75
75
0
0
0
0
---------- ------0
0
0
0
100
100
0
0
100
500
---------- ------0
0
0
0
50
50
0
0
0
0
---------- ------0
0
0
0
125
125
0
0
275
1125
---------- -------
3
------0
0
75
0
0
------200
0
100
100
0
------0
0
50
0
200
------400
0
125
275
250
-------
4
5
------- ------0
200
0
0
75
75
0
125
125
250
------- ------500
0
0
0
0
0
500
0
0
0
------- ------250
500
0
0
50
0
200
500
500
0
------- ------1125
250
0
0
0
0
1125
250
0
0
------- -------
6
------250
0
0
250
0
------0
0
0
0
0
------0
0
0
0
0
------0
0
0
0
0
-------
b.
275 of part D and 100 of part B should be ordered immediately.
c.
(Projected inventory is in the solution of part a.)
d.
If 3 weeks is required to get part D, either the master schedule needs to be pushed
back or lots should be split. An attempt to expedite the part could be made. In
any case, the master schedule as it exists cannot be met.
16 - 6
5.
a.
He would need to know the following:
- Are the parts available, either from inventory or from the supplier,
within the lead time required?
- Can the present work be expedited or the master production schedule
changed to allow for the additional work?
- Is capacity available in the form of additional worker hours, overtime,
or subcontracting?
b.
The press hours are available - only 400 are scheduled on week 2 versus the 500
available. Assembly hours are not available, however, since over 700 of the 800
available hours are scheduled, and 300 additional hours are required. Based on
the shop loadings, the additional 100 widgets cannot be made.
c.
Actions include:
- Subcontracting
- Overtime
- Compressing the work done on widgets during weeks 3 and 4 so that
some of the assembly could be done then.
- Change the production schedule of other products to accommodate the
extra widgets.
- Negotiate for a later due date for part or all of the extra lot of 100
widgets.
16 - 7
6.
a.
Scissors
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
2
Left Side
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
2
50
100
50
400
Right Side
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
2
75
200
Screw
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
3
4
300
5
400
200
400
400
200
3
200
4
400
5
50
400
3
200
4
400
100
5
325
325
2
3
200
4
400
5
500
100
100
b.
No effect, because the order of 200 Right-hand sides is not needed until week
three.
c.
Maintain safety stock.
_
__
ss = L (Z) = 1 (1.65)(50) = 82.5
Keep 83 pairs of scissors as safety stock to meet unanticipated demand at least
95% of the time.
d.
The preferred course of action is to ask the suppliers to reduce the variability of
delivery lead time. If that is not possible, a safety lead time that gives the desired
protection of the production schedule is recommended. For example, if each of
the three component parts was ordered for delivery two weeks prior to the date of
the planned order release, the probability of meeting the production schedule
would be:
(Probability associated with two standard deviations = .9772)
Probability of having all three parts when needed = .9772 x .9772 x .9772 = .9331
16 - 8
7.
a.
NAME: ************************
DATE: 18-Dec-02
SECT: ***********
CHAPTER 16, PROBLEM 7
LAMP ASSEMBLY
**** WEEK ****
*****PART*****
1
2
3
4
5
6
7
8
------- -------------------- ----- ----- ----- ------ ------ ------ ------ -----LAMP GROSS REQUIREMENTS:
0
0
0
0
0
0
1000
1500
ON HAND/SCH RECEIPTS
200
0
0
0
0
0
0
0
NET REQUIREMENTS
0
0
0
0
0
0
800
1500
PLAN. ORDER RELEASES
0
0
0
0
0
800
1500
0
------- -------------------- ----- ----- ----- ------ ------ ------ ------ -----SHADE GROSS REQUIREMENTS:
0
0
0
0
0
800
1500
0
ON HAND/SCH RECEIPTS
400
0
0
0
0
0
0
0
NET REQUIREMENTS
0
0
0
0
0
400
1500
0
PLAN. ORDER RELEASES
0
0
400
1500
0
0
0
0
------- -------------------- ----- ----- ----- ------ ------ ------ ------ ------
16 - 9
7.
a. (continued)
**** WEEK ****
*****PART*****
FRAME GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------NECK GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------SOCKET GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------BASE GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- --------------------
1
0
100
0
0
----0
0
0
700
----0
300
0
0
----0
200
0
500
-----
2
0
0
0
0
----0
0
0
1500
----0
0
0
400
----0
0
0
1500
-----
3
0
0
0
0
----0
0
0
0
----0
0
0
1500
----0
0
0
0
-----
4
0
0
0
700
-----700
0
700
0
-----700
0
400
0
-----700
0
500
0
------
5
0
0
0
1500
-----1500
0
1500
0
-----1500
0
1500
0
-----1500
0
1500
0
------
6
800
0
700
0
-----0
0
0
0
-----0
0
0
0
-----0
0
0
0
------
7
1500
0
1500
0
-----0
0
0
0
-----0
0
0
0
-----0
0
0
0
------
8
0
0
0
0
-----0
0
0
0
-----0
0
0
0
-----0
0
0
0
------
Actions to be taken immediately include ordering 700 necks and 500 bases.
7.
b.
CAPACITY PLAN FOR ASSEMBLY
***WEEK***
1
2
3
4
------- -------------------- ----- ----- ----- -----FRAME ASSEMBLY MINUTES
0
0
0 10500
LAMP ASSEMBLY MINUTES
0
0
0
0
------- -------------------- ----- ----- ----- -----TOTAL ASSEMBLY MINUTES
0
0
0 10500
TOTAL ASSEMBLY HOURS
0
0
0
175
16 - 10
5
6
7
8
------ ------ ------ -----22500
0
0
0
0
4000
7500
0
------ ------ ------ -----22500
4000
7500
0
375 66.67
125
0
175 hours are required in week 4, 375 in week 5, 66 2/3 in week 6, and 125 hours
in week 7. If insufficient assembly time is available, the firm can either use
overtime or adjust the master schedule.
8.
c.
If the lead time for assembly of lamps will be extended from one to two weeks, it
will be necessary to find a way to obtain the 500 bases and 700 necks required to
meet the 1000 lamps required in week 7. Perhaps the orders can be expedited or
the 2 week lead time for frames compressed.
a.
200 phones can be delivered from inventory in week 1, 250 can be assembled
from handset and base subassemblies and delivered in week 2, and 125 can be
assembled from component parts and delivered in week 3.
Materials Plan:
Phone
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
200
200
Handset
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
250
300
Base
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
250
250
Handle
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
75
200
Cord
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
75
75
250
2
250
3
125
250
125
125
2
125
50
75
3
2
125
3
75
125
125
16 - 11
2
3
125
2
3
Case
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
125
200
2
Circuit Board
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
125
150
2
Face Plate
Gross Requirements
On Hand/Scheduled Receipts
Net Requirements
Planned Order Release
1
125
300
2
b.
c.
75
3
25
3
175
Week 1
200
300
200
75
250
200
150
300
Phones
Handset
Handle
Cord
Base
Case
Circuit Board
Face Plates
3
Week 2
250
125
125
0
125
75
25
175
Week 3
125
0
125
0
0
75
25
175
This will not change the Materials Plan because we need handsets and bases
before we can make more phones; our inventory of handsets and bases is zero.
Our inventory of circuit boards is 25, indicating that more circuit boards are not
required to assemble more phones.
16 - 12
9.
a.
**** WEEK ****
*****PART*****
BODY GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------HEAD GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------ARM
GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- -------------------LEG
GROSS REQUIREMENTS:
ON HAND/SCH RECEIPTS
NET REQUIREMENTS
PLAN. ORDER RELEASES
------- --------------------
1
0
25
0
175
----0
50
0
0
----0
60
0
340
----0
80
0
0
-----
2
0
0
0
0
----0
0
0
150
----0
0
0
0
----0
0
0
320
-----
3
200
0
175
0
----200
0
150
0
----400
0
340
0
----400
0
320
0
-----
4
0
0
0
0
-----0
0
0
0
-----0
0
0
0
-----0
0
0
0
------
All orders are allowed one week for assembling. To meet the plan we need to
order immediately 340 arms and 175 bodies.
b.
25 robots can be assembled in one week and delivered to the customer ASAP. The
implication from this example is that this MRP system needs one week in order to
assemble the final product. For orders bigger than 25 we need the full four weeks
to be able to deliver on time.
c.
This will move the order for heads one week ahead, so we need to place an
immediate order for 150 units from that supplier. This will protect the MRP
schedule and allow for assembly by week 4 as planned.
16 - 13