Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

12.3.2 MRP — Material Requirements Planning Technique and Planned Orders

Intended learning outcomes: Disclose a schematic representation of the MRP technique. Explain the determination of net requirements and batch sizes, using an example.

The MRP technique (material requirements planning) for calculating dependent demand is defined below. See also [PtSm11] and [Orli75].
Net requirements planning is another term for MRP (see also Section 5.1.2).

Four steps are carried out for each item, in ascending order of their low-level code (see Section 1.2.2). The four steps thus start with the end products and finish with the raw materials and purchased parts. Repeating the four steps for every item results in a multilevel procedure, as shown in Figure

Fig.       Schematic representation of the MRP technique.

Let us now consider the four steps in detail:

1 Determine gross requirements:

Gross requirement is the time-phased sum of independent and dependent demand of the respective period.

  • At the highest level, that is, for end products, the gross requirement is independent demand. This main input for the MRP technique stems, in general, from the master production schedule (MPS) and is made up of, on the one side, customer orders (the “original” requirement, this is deterministic independent demand), and, on the other side, sales forecasts (the supplementary requirement, this is stochastic independent demand, which entails quasi-deterministic materials management).
  • At the lower levels, that is, for assemblies and parts, the gross requirement often consists of just one of the two classifications of demand, namely, of independent demand or dependent demand. For service parts, for example, it will be made up of both classes. The so-called service parts demand is demand for service parts that are sold as such. Thus, it is forecasted independent demand. Demand for service parts that are integrated into higher-level products is calculated as dependent demand derived from the demand for the higher-level product in step 4. Thus, it is derived by a deterministic technique; in the case of stochastic independent demand, by a quasi-deterministic technique. If the gross requirement consists of both classes, a multilevel master schedule may have to be used.[note 1203]

2 Determine the net requirements:

Net requirements are the time-phased negative projected available inventory.

Figure shows a common situation for any given item.

Fig.       Determination of net requirements and batch sizes (example).

  • The safety stock is subtracted from projected available inventory right at the start. As a result, production or procurement orders are then scheduled such that they enter into stock when the projected available inventory falls below zero.
  • It is assumed that receipts occur at the beginning of a time period and that issues occur during a period. Receipts and issues are now added or subtracted over time, and the available quantity is calculated along the time axis. This results in the net requirements: a series of negative available inventories after each period. The sum of all these negative available inventories along the time axis is known as net requirements.
  • Step 3 of the MRP technique (see Figure, determina­tion of batch sizes, has already been carried out by way of example. In step 4, planned orders are generated from the batches. Planned release, that is, the scheduled release of a planned order, is thus the planned receipt brought forward by the lead time (here, by three periods).
  • Of course, it would also be possible to use the same graphical representation for listing every planning-related event individually, rather than in a bucketed system, that is, combining them in periods or time buckets. Such a bucketless system could result in a very large list, however (or a large number of columns in Figure

3 Determine the batch sizes:

  • There are a number of batch-sizing policies for combining net requirements into batch sizes. These are described in Section 12.4.

4 Create an order proposal, that is, a planned order for every batch:

  • The first step is to calculate the lead time to determine the point in time at which the order should be released.
  • For a planned production order, the next step is to determine — from the routing sheet of the product to be manufactured — the planned operations and thus the planned load of the work centers (see also Section 12.3.3).
  • For a planned production order, this also includes a requirements explosion to schedule the demand for components (see also Section 12.3.3). This (dependent) demand is the batch size multiplied by the usage quantity. It is also the gross require­ment for the component and is one of the quantities to be determined in step 1 for the component in a subsequent MRP stage. This is the final MRP planning stage.

If the order proposals are not subsequently released, they are automatically adapted to take account of the current situation the next time that requirements are calculated. This generally means deleting all the planned orders and then recalculating them in a comprehensive rerun of the MRP algorithm.

If the independent demand changes only slightly, the net change MRP technique is usually faster. This technique attempts to consider only those net requirements that have changed. The four-step procedure is applied only to those articles whose projected available inventory has changed since the last MRP run. If planned production orders are changed, this will also affect the dependent demands for components, so that the MRP procedure must be repeated for each component. If a large number of items are affected, the entire order network will have to be recalculated — effectively a comprehensive rerun of the MRP algorithm.

Exercise: Compare the effects of the MRP technique compared to the order-point technique by choosing different values for the parameters as well as the monthly gross requirements.

Course section 12.3: Subsections and their intended learning outcomes