The MRP Heuristic

1
The MRP Heuristic

• MRP stands for Materials Requirement Planning
• It is a widely used approach for production
  planning and scheduling in industry
• It is the approach embedded in many commercially
  available software applications

2
MRP Assumptions

• No capacity constraints
• A task initiated in period t completes in period
  tai
• Product structure is typically assumed to be of
  the assembly type

3
Formulation
4
The MRP Solution Approach

• Solve the lot sizing problem for each item
  independently starting with the end-items
  (finished products) and working your way down the
  bill-of-material (BOM)
• The selected production quantities for an item,
  determine the demand for the items that are its
  immediate predecessors (its input items)

5
Solving the Lot Sizing Problem

• Solve the problem for each item optimally (e.g.,
  using the Wagner-Whittin algorithm)
• Solve the problem approximately using a heuristic
  (e.g., using a fixed order period, a fixed order
  period, or a lot for lot heuristic)

6
Example
7
Example (Continued)
8
MRP Terminology

• Netting determining net requirements against
  projected inventory for each period
• Lot Sizing determining order quantities
• Time Phasing determining when production orders
  should be initiated, given the production lead
  time
• BOM Explosion determining gross requirements
  for components

9
MRP Terminology (Continued)

• Master Production Schedule (MPS) due dates and
  quantities for all top level items (finished
  products)
• Bill of Material (BOM) the items that goes into
  each sub-assembly and into the finished product
• Projected Inventory (on hand plus scheduled
  receipts) for all items
• Planned Lead times production lead times
• Level code a number assigned to an item
  depending on the lowest position in the BOM where
  it can be found

10
The Netting Procedure

• Dt Gross requirements in period t for some item
• St Quantity currently scheduled to complete in
  period t (i.e., a scheduled receipt)
• It projected on-hand inventory for the end of
  period t
• Nt Net requirement for period t
• Qt Planned orders in period t (production
  quantity initiated in period t)

11
The Basic Steps

• Step 1 Let t 1
• Step 2 It It-1 - Dt
• Step 3 If It ? 0, then let t t 1 and go back
  to step 2, otherwise, let Nt - It and set Nt
  Dt for all t gt t
• Step 4 Use a lot sizing method to determine Qt
  for t1,, T, taking into account the production
  leadtime
• Step 5 Use the production quantities Qt in
  determining the gross requirements for all items
  that are used by the item under current
  consideration

12
Example - The Bill of Materials
A
B
100 (2)
200
500
300
300
400
100
600
300
400
13
Example The Input Data
14
Example Part A
15
Example Part B
16
Example Part 500
17
Example Part 100
18
Limitations of MRP

• Capacity-insensitive
• Assumes fixed lead times
• Incentive to inflate lead times

19
The MRP Planning Loop

• 1. Fixed lead times lead to poor due date
  performance
• 2. Management decides to increase lead time
• 3. Longer lead time requires longer forecasting
  horizon
• 4. Longer forecasting horizon creates errors in
  estimating demand
• 5. Errors in estimating demand lead to poor due
  date performance.
• 6. Management decides to increase lead time

20
Enhancements to MRP

• MRP II The functionality of materials
  requirement planning (MRP) capacity requirement
  planning (CRP)
• APS Advanced Planning Systems (software
  applications with the ability to solve the
  underlying optimization problem)
• ERP Enterprise Requirement Planning (MRP or APS
  capabilities integrated into an enterprise-wide
  information system)