The MRP Process

The MRP system is responsible for scheduling the production of all items beneath the end item level. It recommends the release of work orders and purchase orders, and issues rescheduling notices when necessary.

The MRP process is best explained through an example. We will use a worksheet called the MRP matrix to record the calculations that are made. Table 13.4 shows the matrix and provides a brief description of the entries that are required. Example 13.1 follows.

EXAMPLE
13.1
The Alpha Beta Company

The Alpha Beta Company produces two products, A and B, that are made from components C and D. Given the following product structures, master scheduling requirements, and inventory information, determine when orders should be released for A, B, C, and D and the size of those orders.

SOLUTION:

Table 13.5 shows a completed MRP matrix for each of the four items in the product structure diagram. The matrices were completed first for the level 0 items, A and B, then for the level 1 items, C and D.

  • Item A: First, we fill in the gross requirements for A, 100 units in period 8. Since A is an end item, we read this information from the master production schedule. In the projected on-hand row, we begin with 10 units of A in inventory and continue with 10 units on hand until we need to use them. At the end of period 7, we have 10 units of A in inventory. We need 100 A's in period 8. We can use the 10 A's we have on hand and make 90 more. The subtraction of the on-hand quantity from the gross requirements is called netting. The net requirement of 90 A's is the gross requirement net of inventory. It appears in the same time period as the gross requirement. There is no lot-sizing requirement (A's are ordered in multiples of 1), so the planned order receipts are the same as the net requirements.
    If we need to receive 90 A's by period 8 and it takes 3 periods to make A, we need to release an order for A in period 5. Thus, the quantity of 90 appears in period 5 of the planned order release row. This process of subtracting the lead time from the due date is called lead time offsetting, or time phasing, of requirements. The planned order release row is the result, or output, of the MRP calculations for item A. Only the entries in the final row of each matrix will be used in subsequent MRP calculations for component items.
  • Item B: Item B's matrix is completed in the same fashion as item A's. The gross requirement of 200 B's in period 6 is given in the master production schedule. Since there are 5 units of B on hand, the net requirement for B is 195 in period 5. There are no scheduled receipts for B and no lot-sizing requirements. If 195 B's are needed in period 5 and it takes 2 weeks to make B's, we need to release an order to begin production of B's in period 4.
  • Item C: For all level 1 items, we need to calculate the gross requirements by multiplying the quantity per assembly given in parentheses on the product structure diagram times the planned order release (POR) of the parent item. This multiplication process is called explosion.
    An order for 90 A's is set to be released in period 5. Three C's are needed for every A, so we place a gross requirement for 270 C's in period 5. We have 140 C's in inventory. They remain in inventory until period 5, when we use them to satisfy partially the demand for C's. The net requirement for C is thus 130 units. But instead of ordering the net requirement of 130, we order the lot-size quantity of 150. If 130 C's need to be received by period 5 and it takes 4 weeks to make C's, we need to release the order for C in period 1. The 150 C's will arrive in period 5. We will use 130 of them to meet A's demand for C's. The remaining 20 units will be placed into inventory.
  • Item D: Item D has two parents, A and B. We need to gather all the gross requirements for D first before completing the rest of the matrix. Item A has a planned order release of 90 units in period 5. Two D's are required for every A, so (90 ¥ 2) = 180 D's need to be available by period 5. D's other parent, item B, has a planned order release of 195 units scheduled in period 4. Every B requires three D's, so (195 ¥ 3) = 585 D's are also needed by period 4.
    We have 200 D's on hand at the end of period 1. An order of 250 D's is scheduled to be received in period 2. By the end of period 2, we project that (200 + 250) = 450 D's will be on hand. We plan to use those 450 D's to fill partially the first gross requirement entry, leaving a net requirement of (585 - 450) = 135 D's in period 4. Since D's are ordered in lots of 250, even though we need only 135 D's, we will place an order for 250. It takes 2 weeks to make D's. Since they are needed in period 4, we will plan to release the order in period 2. When the order arrives, 135 D's will go toward making B's, and the remaining (250 - 135) = 115 will be placed into inventory.
    The 115 D's projected to be on hand by the end of period 4 can be used to satisfy partially the gross requirement for 180 D's in period 5, leaving a net requirement of (180 - 115) = 65 D's. Because of lot-sizing requirements, we will order 250 D's. Item D has a lead time of two periods. If we need to receive D's by period 5, we need to release an order for D in period 3. We plan the order release for 250 and project that (250 - 65) = 185 units will be left over and placed into inventory at the end of period 5.
  • We have now completed the MRP calculations. To summarize the results, we construct a planned order report from the planned order release row of each matrix, as follows:

The MRP matrices are the worksheets that determine the planned orders for each inventory item. They are generally not printed out unless requested by the MRP planner. Looking at the MRP matrix for item D, it appears that the objective of maintaining the lowest possible level of inventory has been violated. This is due to the lot-sizing requirement that orders item D in multiples of 250 and the scheduled receipt for D that arrives before it is needed. The MRP system will issue an error message asking that the scheduled receipt be postponed until period 4, but it will not comment on the excess inventory due to lot sizing because the user has input those requirements. Unless there is some problem in obtaining the two orders for item D, the planner will probably never notice the excess inventory of item D either. This illustrates one of the problems with MRP systems. Users tend to input policies that undermine the basic objectives of the system, and the logic of the system is often hidden from the user.

If the MRP calculations seem tedious, remember that the system is computerized and no manual calculations are required. POM for Windows can be used to solve simple MRP problems.


13-8. Describe the MRP process, including netting, explosion, and lead time offsetting.