MRP

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MRP
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Question how do firms actually organize things
to turn materials into finished products?
MRP (Material Requirements Planning) -
determines number of parts, components and
materials to produce each end item - determines
when each component, part and material is needed
to finish the end items on schedule
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Material Requirements Planning
Manufacturing Resource Planning (MRP II)
Enterprise Resource Planning
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Products are combinations of parts
Example Bicycle
Handle bars (1)
Metal Frame (1)
Wheels (2)
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MRP Systems Materials Requirements Planning

• Bill of Materials (product structure tree,
  schematic, product flow diagram)
• Relationships with suppliers (we can manufacture
  some of the parts, others we can get from
  suppliers)
• Master Production Schedule is the key input

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Summary How does MRP work?
Material Requirement Planning
Production
Assembly
Customer
Production
Assembly
Production
Units are PUSHED forward according to the plan!
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Lets look at an example BOM...
A
Question How many Ds we need in order to
produce 50 As?
B(2)
C(1)
D(3)
E(3)
D(1)
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How do we manage order release?
We need information on delivery times!
Parts-Product Process Lead Time
A 10
B 15
C 10
D 15
E 10
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Lets look at an example BOM...
A
(10)
Question When do we start producing/ordering
each part?
B(2)
C(1)
(15)
(10)
(15)
D(3)
E(3)
D(1)
(15)
(10)
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Lets assume that we need 50 units of A
Delivery date for final product
5 days
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Start assembly for 50 units of A
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Start assembly for 100 units of B
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Start assembly for 50 units of C
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Order 300 units of D for Bs process
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Order 50 units of D for Cs assembly
Parts-Products
A
B
C
D
E
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Lets assume that we need 50 units of A
Order 50 units of E for Cs assembly
Parts-Products
A
B
C
D
E
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Lot Sizing in MRP Systems

• Lot-for-lot (L4L)
• Produce to cover next period
• EOQ
• Apply the EOQ approximation for yearly demand
• Least Unit Cost
• Minimize total cost (order carry) per unit

These are all approximate methods, none is
guaranteed to be optimal. We can apply all of
them and find the least-cost one to implement.
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Example
Cost per item 10 Order/setup
cost 47 Inventory carrying cost/month 2 Start
ing inventory 50 Production lead time 1
month Monthly requirements 1 2 3 4 5 6 100 50 80
120 70 80
For the solution, see file mrp_methods.pdf