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MaterialRequirementsPlanning
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M&DCPurchasing&SupplyChain:MaterialManagement

Material Requirements Planning

IntroductiontoMaterialManagement

MasterScheduling

Contents

MaterialRequirementsPlanning
CapacityManagement

1.

Introduction

ProductionActivityControl

2.

BillsOfMaterial

Purchasing

3.

MaterialRequirementsPlanningProcess

4.

UsingTheMaterialRequirementsPlan

Forecasting
InventoryFundamentals
OrderQuantities

1.Introduction

IndependentDemandOrderingSystems

Chapter3describedtheroleofthemasterproductionscheduleinshowingtheenditems,or
majorcomponents,thatmanufacturingintendstobuild.Theseitemsaremadeorassembled
PhysicalInventoryandWarehouseManagement fromcomponentsthatmustbeavailableintherightquantitiesandattherighttimetomeetthe
masterproductionschedule(MPS)requirements.Ifanycomponentismissing,theproduct
cannotbebuiltandshippedontime.Materialrequirementsplanning(MRP)isthesystemused
PhysicalDistribution
toavoidmissingparts.Itestablishesaschedule(priorityplan)showingthecomponents
requiredateachleveloftheassemblyand,basedonleadtimes,calculatesthetimewhen
thesecomponentswillbeneeded.
Thischapterwilldescribebillsofmaterial(themajorbuildingblockofmaterialrequirements
planning),detailtheMRPprocess,andexplainhowthematerialrequirementsplanisused.But
first,somedetailsabouttheenvironmentinwhichMRPoperates.

NatureofDemand
Therearetwotypesofdemand:independentanddependent.Independentdemandis
notrelatedtothedemandforanyotherproduct.Forexample,ifacompanymakes
woodentables,thedemandforthetablesisindependent.Masterproductionschedule
itemsareindependentdemanditems.
Thedemandforthesides,ends,legs,andtopsdependsonthedemandforthetables,
andthesearedependentdemanditems.
Figure4.1isaproducttreethatshowstherelationshipbetweenindependentand
dependentdemanditems.Thefiguresinparenthesesshowtherequiredquantitiesof
eachcomponent.
Sinceindependentdemandisnotrelatedtothedemandforanyotherassembliesor
products,itmustbeforecast.However,sincedependentdemandisdirectlyrelatedto
thedemandforhigherlevelassembliesorproducts,itcanbecalculated.Material
requirementsplanningisdesignedtodothiscalculation.\
Anitemcanhavebothadependentandanindependentdemand.Aserviceor
replacementparthasboth.Themanufacturerofvacuumcleanersusesflexiblehosein
theassemblyoftheunits.Intheassemblyofthevacuums,thehoseisadependent
demanditem.However,thehosehasanastyhabitofbreaking,andthemanufacturer
musthavereplacementhosesavailable.Demandforreplacementhosesis
independentsincedemandforthemdoesnotdependdirectlyuponthenumberof
vacuumsmanufactured.
Dependencycanbehorizontalorvertical.Thedependencyofacomponentonits
parentisvertical.However,componentsalsodependoneachother(horizontal
dependency).Ifonecomponentisgoingtobeaweeklatethenthefinalassemblyisa
weeklate.Theothercomponentsarenotneededuntillater.Thisisalsoadependency,
andiscalledhorizontaldependency.Plannersareconcernedwithhorizontal
dependencywhenapartisdelayedorthereisashortage,forthenotherpartswillhave
toberescheduled.

ObjectivesofMRP
Materialrequirementsplanninghastwomajorobjectives:determinerequirementsand
keepprioritiescurrent.

Determinerequirements.
Themainobjectiveofanymanufacturingplanningandcontrolsystemistohavethe
rightmaterialsintherightquantitiesavailableattherighttimetomeetthedemandfor
thefirmsproducts.Thematerialrequirementsplansobjectiveistodeterminewhat

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componentsareneededtomeetthemasterproduction

scheduleand,basedonleadtime,tocalculatetheperiodswhenthecomponentsmustbe
available.Itmustdeterminethefollowing:
Whattoorder.
Howmuchtoorder.
Whentoorder.
Whentoscheduledelivery.

Keepprioritiescurrent.
Thedemandfor,andsupplyof,componentschangesdaily.Customersenterorchange
orders.Componentsgetusedup,suppliersarelatewithdelivery,scrapoccurs,orders
arecompleted,andmachinesbreakdown.Inthiseverchangingworld,amaterial
requirementsplanmustbeabletoreorganizeprioritiestokeepplanscurrent.Itmust
beabletoaddanddelete,expedite,delay,andchangeorders.

LinkagestoOtherMPCFunctions
Themasterproductionscheduledrivesthematerialrequirementsplan.TheMRPisa
priorityplanforthecomponentsneededtomaketheproductsintheMPS.Theplanis
validonlyifcapacityisavailablewhenneededtomakethecomponents,andtheplan
mustbecheckedagainstavailablecapacity.Theprocessofdoingsoiscalled
capacityrequirementsplanningandisdiscussedinthenextchapter.
Materialrequirementsplanningdrives,orisinputto,productionactivitycontrol(PAC)
andpurchasing.MRPplansthereleaseandreceiptdatesfororders.PACand
purchasingmustplanandcontroltheperformanceoftheorderstomeettheduedates.
Figure4.2showsadiagramoftheproductionplanningandcontrolsystemwithits
inputsandoutputs.

TheComputer
Ifacompanymakesafewsimpleproducts,itmightbepossibletoperformmaterial
requirementsplanningmanually.However,mostcompaniesneedtokeeptrackof
thousandsofcomponentsinaworldofchangingdemand,supply,andcapacity.
Inthedaysbeforecomputers,itwasnecessarytomaintainextensivemanualsystems
andtohavelargeinventoriesandlongleadtimes.Thesewereneededasacushion
duetothelackofaccurate,uptodateinformationandtheinabilitytoperformthe
necessarycalculationsquickly.Somehow,someoneintheorganizationfiguredout
whatwasrequiredsooner,orveryoften,laterthanneeded.Getitearlyandgetlotsof
itwasagoodrulethen.
Computersareincrediblyfast,accurate,andideallysuitedforthejobathand.With
theirabilitytostoreandmanipulatedataandproduceinformationrapidly,
manufacturingnowhasatooltousemodernmanufacturingplanningandcontrol
systemsproperly.Therearemanyapplicationprogramsavailablethatwillperformthe
calculationsneededinMRPsystems.Thecomputersoftwareprogramthat

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organizesandmaintainsthebillsofmaterialstructuresandtheirlinkagesiscalleda
billofmaterialprocessor.

InputstotheMaterialRequirementsPlanningSystem
Masterproduction
schedule.Themasterproductionscheduleisastatementofwhich
enditemsaretobeproduced,thequantityofeach,andthedates
theyaretobecompleted.ItdrivestheMRPsystembyprovidingthe
initialinputfortheitemsneeded.

Inventoryrecords.
AmajorinputtotheMRPsystemisinventory.Whenacalculationis
madetofindouthowmanyareneeded,thequantitiesavailablemust
beconsidered.
Therearetwokindsofinformationneeded.Thefirstiscalledplanning
factorsandincludesinformationsuchasorderquantities,leadtimes,
safetystock,andscrap.Thisinformationdoesnotchangeoften
however,itisneededtoplanwhatquantitiestoorderandwhento
orderfortimelydeliveries.
Thesecondkindofinformationnecessaryisonthestatusofeach
item.TheMRPsystemneedstoknowhowmuchisavailable,how
muchisallocated,andhow
muchisavailableforfuturedemand.Thistypeofinformationis
dynamicandchangeswitheverytransactionthattakesplace.
Thesedataaremaintainedinaninventoryrecordfile,alsocalleda
partmasterfileoritemmasterfile.Eachitemhasarecordandallthe
recordstogetherformthefile.

Billsofmaterial.
Thebillofmaterialisoneofthemostimportantdocumentsina
manufacturingcompany.Itwillbediscussednext.

2.BillsOfMaterial
Beforewecanmakesomething,wemustknowwhatcomponentsareneededtomakeit.Tobakea
cake,weneedarecipe.Tomixchemicalstogether,weneedaformula.Toassembleawheelbarrow,
weneedapartslist.Eventhoughthenamesaredifferent,recipes,formulas,andpartsliststellus
whatisneededtomaketheendproduct.Allofthesearebillsofmaterial.
TheAmericanProductionandInventoryControlSociety(APICS)definesabillofmaterialasalisting
ofallthesubassemblies,intermediates,parts,andrawmaterialsthatgointomakingtheparent
assemblyshowingthequantitiesofeachrequiredtomakeanassembly.Figure4.3showsa
simplifiedbillofmaterial.Therearethreeimportantpoints:

a.
b.

Thebillofmaterialshowsallthepartsrequiredtomakeoneoftheitem.
Eachpartoritemhasonlyonepartnumber.Aspecificnumberisuniquetoonepartandisnot
assignedtoanyotherpart.Thus,ifaparticularnumberappearsontwodifferentbillsofmaterial,the

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partsoidentifiedisthesame.

c.

Apartisdefinedbyitsform,fit,orfunction.Ifanyofthesechange,thenitisnotthesamepartandit
musthaveadifferentpartnumber.Forexample,apartwhenpaintedbecomesadifferentpartand
musthaveadifferentnumber.Ifthepartcouldbepaintedinthreedifferentcolors,theneachmustbe
identifiedwithitsuniquenumber.

Part
Description
Number

QuantityRequired

203

WoodenLeg

411

WoodenEnds

622

WoodenSides

23

TableTop

722

HardwareKit

Thebillofmaterialshowsthecomponentsthatgointomakingtheparent.Itdoesnotshowthesteps
orprocessusedtomaketheparentorthecomponents.Thatinformationisrecordedinaroutingfile.
ThisfilewillbediscussedinChapters5and6.

BillsofMaterialStructure
Billsofmaterialstructurereferstotheoveralldesignforthearrangementofbillsof
materialfiles.Differentdepartmentsinacompanyusebillsofmaterialforavarietyof
purposes.Althougheachuserhasindividualpreferencesforthewaythebillshouldbe
structured,theremustbeonlyonestructure,anditshouldbedesignedtosatisfymost
needs.However,therecanbeseveralformats,orways,topresentthebill.Following
aresomeimportantformatsforbills.

Producttree.
Figure4.4showsaproducttreeforthebillofmaterialshowninFigure4.3.Theproduct
treeisaconvenientwaytothinkaboutbillsofmaterial,butitisseldomusedexcept
forteachingandtesting.Inthistext,itisusedforthatpurpose.

Parentcomponentrelationship.
TheproducttreeandthebillofmaterialshowninFigures4.1and4.3arecalledsingle
levelstructures.Anassemblyisconsideredaparent,andtheitemsthatcompriseit
arecalleditscomponentitems.Figure4.4showstheparentcomponentrelationship
ofthetable(P/N100).Uniquepartnumbershavealsobeenassignedtoeachpart.
Thismakesidentificationofthepartabsolute.

Multilevelbill.
Figure4.5showsthesameproductasthesinglelevelbillshowninFigures4.3and
4.4.However,thesinglelevelcomponentshavebeenexpandedintotheircomponents.
Multilevelbillsareformedaslogicalgroupingsofpartsintosubassembliesbasedon
thewaytheproductisassembled.Forexample,aframe,chassis,doors,windows,
andenginearerequiredtoconstructanautomobile.Eachoftheseformsalogical
groupofcomponentsandpartsand,inturn,hasitsownbillofmaterial.
Itistheresponsibilityofmanufacturingengineeringtodecidehowtheproductistobe
made:theoperationstobeperformed,theirsequence,andtheirgrouping.The
subassembliescreatedaretheresultofthis.Manufacturinghasdecidedtoassemble
thesides,ends,andlegsupports(partofthehardwarekit)ofthetable(P/N100)in
Figure4.4intoaframe(P/N300).Thelegs,legbolts,andframe

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subassemblyaretobeassembledintothebase(P/N200).Thetop(P/N023)istobe
madefromthreeboardsgluedtogether.Notethattheoriginalpartsareallthere,but
theyhavebeengroupedintosubassembliesandeachsubassemblyhasitsownpart
number.
Oneconventionusedwithmultilevelbillsofmaterialisthatthelastitemsonthetree
(legs,legbolts,ends,sides,glue,andboards)areallpurchaseditems.Generally,abill
ofmaterialisnotcompleteuntilallbranchesoftheproductstructuretreeendina
purchasedpart.
Eachlevelinthebillofmaterialisassignedanumberstartingfromthetopandworking
down.Thetoplevel,orendproductlevel,islevelzero,anditscomponentsareatlevel
one.

Multiplebill.
Amultiplebillisusedwhencompaniesusuallymakemorethanoneproduct,andthe
samecomponentsareoftenusedinseveralproducts.Thisisparticularlytruewith
familiesofproducts.Usingourexampleofatable,thiscompanymakestwomodels.
Theyaresimilarexceptthetopsaredifferent.Figure4.6showsthetwobillsof
material.Becausetheboardsusedinthetoparedifferent,eachtophasadifferentpart
number.Thebalanceofthecomponentsarecommontobothtables.

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method,theinformationhastobestoredonlyonce.Forexample,theframe(P/N300)
mightbeusedonothertableswithdifferentlegsortops.
Thereareseveraladvantagestousingsinglelevelbillsincludingthefollowing:

Duplicationofrecordsisavoided.Forinstance,base200isusedinbothtable
100andtable150.Ratherthanhavetworecordsofbase200oneinthebillfor
table100andoneinthebillfortable150onlyonerecordneedbekept.
Thenumberofrecordsand,incomputersystems,thefilesizeisreducedby
avoidingduplicationofrecords.
Maintainingbillsofmaterialissimplified.Forexample,ifthereisachangein
base200,thechangeneedbemadeinonlyoneplace.

Singlelevelbill.
Asinglelevelbillofmaterialcontainsonlytheparentanditsimmediate
components,whichiswhyitiscalledasinglelevelbill.ThetablesshowninFigure4.6
havesixsinglelevelbills,andtheseareshowninFigure4.7.Notethatmany
componentsarecommontobothtables.
Thecomputerstoresinformationdescribingtheproductstructureasasinglelevelbill.
Aseriesofsinglelevelbillsisneededtocompletelydefineaproduct.Forexample,the
tableneedsfoursinglelevelbills,oneeachforthetable,base,top,andframe.These
canbechainedtogethertoformamultilevel,orindented,bill.Usingthis

EXAMPLEPROBLEM
Usingthefollowingproducttree,constructtheappropriatesingleleveltrees.Howmany
Ksareneededtomake100Xsand50Ys?

Answer

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Indentedbill.
Amultilevelbillofmaterialcanalsobeshownasanindentedbillofmaterial.Thisbill
usesindentationsasawayofidentifyingparentsfromcomponents.Figure4.8shows
anindentedbillforthetableinFigure4.5.
Thecomponentsoftheparenttablearelistedflushleftandtheircomponentsare
indented.Thecomponentsofthebase(legs,legbolts,andframe)areindented
immediatelybelowtheirparent.Thecomponentsoftheframearefurtherindented
immediatelybelowtheirparent.Thus,thecomponentsoftheframearefurtherindented
immediatelybelowtheirparent.Thus,thecomponentsarelinkedtotheirparentsby
indentingthemassubentriesandbylistingthemimmediatelybelowtheparent.

Summarizedpartslist.
ThebillofmaterialshowninFigure4.3iscalledasummarizedpartslist.Itlistsallthe
partsneededtomakeonecompleteassembly.

PartNumber

Description

QuantityRequired

200

Base

203

Legs

220

LegBolts

300

Frame

622

Sides

411

Ends

533

LegSupports

66

Glue

23

Tq

30

Boards

66

Glue

Thepartslistisproducedbytheproductdesignengineeranddoesnotcontainany
informationaboutthewaytheproductismadeorassembled.

Planningbill.
Amajoruseofbillsofmaterialistoplanproduction.Planningbillsareanartificial
groupingofcomponentsforplanningpurposes.Theyareusedtosimplifyforecasting,
masterproductionscheduling,andmaterialrequirementsplanning.Theydonot

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representbuildableproductsbutanaverageproduct.Usingthetableexample,suppose
thecompanymanufacturedtableswiththreedifferentlegstyles,threedifferentsides
andends,andthreedifferenttops.Intotal,theyaremaking3x3x3=27different
tables,eachwithitsownbillofmaterial.Forplanningpurposes,the27billscanbe
simplifiedbyshowingthepercentagesplitforeachtypeofcomponentononebill.
Figure4.9showshowtheproductstructurewouldlook.Thepercentageusageof
componentsisobtainedfromaforecastorpastusage.Notethepercentageforeach
categoryofcomponentaddsupto100%.

WhereUsedandPegging
Whereusedreport.
Whereusedreportsgivethesameinformationasabillofmaterial,but
thewhereusedreportgivestheparentsforacomponentwhereasthe
billgivesthecomponentsforaparent.Acomponentmaybeusedin
makingseveralparents.Wheelsonanautomobileforexamplemight
beusedonseveralmodelsofcars,Alistingofalltheparentsinwhich
acomponentisusediscalledawhereusedreportThishasseveral
uses,suchasinimplementinganengineeringchange,orwhenmate
rialsarescarce,orincostingaproduct.

Peggingreport.
Apeggingreportissimilartoawhereusedreport.However,th
peggingreportshowsonlythoseparentsforwhichthereisanexisting
requirement

whereasthewhereusedreportshowsallparentsforacomponent.The
peggingreportshowstheparentscreatingthedemandforthe
components,thequantitiesneeded,andwhentheyareneeded.
Peggingkeepstrackoftheoriginofthedemand.Figure4.10showsan
exampleofaproducttreeinwhichpartCisusedtwiceandapegging
report.

UsesforBillsofMaterial
Thebillofmaterialisoneofthemostwidelyuseddocumentsinamanufacturing
company.Somemajorusesareasfollows:
Productdefinition.Thebillspecifiesthecomponentsneededtomakethe
product.
Engineeringchangecontrol.Productdesignengineerssometimeschangethe
designofaproductandthecomponentsused.Thesechangesmustbe
recordedandcontrolled.Thebillprovidesthemethodfordoingso.

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PeggedRequirements
Item
Number
C

Week
1

50

125

25

50

150

SourceofRequirements
A

50

25

25

50

50

100

100

Serviceparts.Replacementpartsneededtorepairabrokencomponent
aredeterminedfromthebillofmaterial.
Planning.Billsofmaterialdefinewhatmaterialshavetobescheduled
tomaketheendproduct.Theydefinewhatcomponentshavetobe
purchasedormadetosatisfythemasterproductionschedule.
Orderentry.Whenaproducthasaverylargenumberofoptions(e.g.,
cars),theorderentrysystemveryoftenconfigurestheendproductbill
ofmaterials.Thebillcanalsobeusedtopricetheproduct.
Manufacturing.Thebillprovidesalistofthepartsneededtomakeor
assembleaproduct.
Costing.Productcostisusuallybrokendownintodirectmaterial,direct
labor,andoverhead.Thebillprovidesnotonlyamethodofdetermining
directmaterialbutalsoastructureforrecordingdirectlaborand
distributingoverhead.
Thislistisnotcomplete,butitshowstheextensiveusemadeofthebillofmaterialin
manufacturing.Thereisscarcelyadepartmentofthecompanythatwillnotusethe
billatsometime.Maintainingbillsofmaterialandtheiraccuracyisextremely
important.Again,thecomputerisanexcellenttoolforcentrallymaintainingbillsand
forupdatingthem.

3.MaterialRequirementsPlanningProcess
Eachcomponentshownonthebillofmaterialisplannedforbythematerialrequirementsplanning
system.Forconvenience,itisassumedthateachcomponentwillgointoinventoryandbeaccounted
for.Whetherthecomponentsactuallygointoaphysicalinventoryornotisnotimportant.However,it
isimportanttorealizethatplanningandcontroltakeplaceforeachcomponentonthebill.Raw
materialmaygothroughseveraloperationsbeforeitisprocessedandreadyforassembly,orthere
maybeseveralassemblyoperationsbetweencomponentsandparent.Theseoperationsareplanned
andcontrolledbyproductionactivitycontrol,notmaterialrequirementsplanning.
Thepurposeofmaterialrequirementsplanningistodeterminethecomponentsneeded,quantities,and
duedatessoitemsinthemasterproductionschedulearemadeontime.Thissectionstudiesthe
basicMRPtechniquesfordoingso.Thesetechniqueswillbediscussedunderthefollowingheadings:
Explodingandoffsetting
Grossandnetrequirements
Releasingorders
Lowlevelcodingandnetting

ExplodingandOffsetting
ConsidertheproducttreeshowninFigure4.11.Itissimilartotheonesusedbeforebut
containsanothernecessarypieceofinformation:leadtimes(LT).

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Leadtime.
Leadtimeisthespanoftimeneededtoperformaprocess.Inmanufacturingit
includestimefororderpreparation,queuing,processing,moving,receivingand
inspecting,andanyexpecteddelays.Inthisexample,ifBandCareavailable,itwill
takeoneweektoassembleA.Thus,theleadtimeforAisoneweek.Similarly,ifD
andEareavailable,thetimerequiredtomanufactureBistwoweeks.Thepurchase
leadtimesforD,E,andCarealloneweek.
Inthisparticularproducttree,theusagequantitiesthequantityofcomponents
neededtomakeoneofaparentareallone.TomakeanArequiresoneBandoneC,
andtomakeaBrequiresoneDandoneE.

Explodingtherequirements.Exploding
istheprocessofmultiplyingtherequirementsbytheusagequantityandrecordingthe
appropriaterequirementsthroughouttheproducttree.

Offsetting
Offsettingistheprocessofplacingtheexplodedrequirementsintheirproperperiods
basedonleadtime.Forexample,if50unitsofAarerequiredinweek5,theorderto
assembletheAsmustbereleasedinweek4,and50Bsand50Csmustbeavailable
inweek4.
Thus,thereshouldbeaplannedorderreceiptfor50inweek5andaplannedorder
releaseforthatnumberinweek4.Ifanorderfor50Asistobereleasedinweek4,50
Bsand50Csmustbeavailableinthatweek.Thus,theremustbeplannedorder
receiptsforthosecomponentsinweek4.SincetheleadtimetoassembleaBistwo
weeks,theremustbeaplannedorderreleasefortheBsinweek2.Sincetheleadtime
tomakeaCisoneweek,theremustbeaplannedorderreleasefor50inweek3.The
plannedorderreceiptsandplannedorderreleasesfortheDsandEsaredeterminedin
thesamemanner.Figure4.12showswhenordersmustbereleasedandreceivedso
thedeliverydatecanbemet.

ExampleProblem
UsingtheproducttreeandleadtimesshowninFigure4.11,completethefollowing
tabletodeterminetheplannedorderreceiptsandreleases.Thereare50Asrequiredin
week5and100inweek6.

Answer

GrossandNetRequirements
TheprevioussectionassumedthatnoinventorywasavailablefortheAsoranyofthe
components.Ofteninventoryisavailableandmustbeincludedwhencalculating
quantitiestobeproduced.If,forinstance,thereare20Asinstock,only30needtobe
made.Therequirementsforcomponentpartswouldbereducedaccordingly.The
calculationisasfollows:
Grossrequirement=50
Inventoryavailable=20
Netrequirements=grossrequirementsavailableinventory
Netrequirements=5020=30units
Sinceonly30Asneedtobemade,thegrossrequirementforBsandCsisonly
30.
Theplannedorderreleaseoftheparentbecomesthegross
requirementofthecomponent.
ThetimephasedinventoryrecordshowninFigure4.12cannowbemodifiedtc
consideranyinventoryavailable.Forexample,supposethereare10Bsavailablea~
wellasthe20As.TherequirementsforthecomponentsDandEwouldchangeFigure
4.13showsthechangeintheMRPrecord.
PartNumber

GrossRequirements
ProjectedAvailable20
NetRequirements

Week
1

5
50

20

20

20

20

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PlannedOrderRelease

GrossRequirements

10

10

PlannedOrderReceipt

ProjectedAvailable10

NetRequirements
PlannedOrderReceipt
PlannedOrderRelease
C

GrossRequirements

NetRequirements

10

20

20

20

ProjectedAvailable

NetRequirements

PlannedOrderReceipt
PlannedOrderRelease

20

GrossRequirements

NetRequirements

PlannedOrderRelease

20

30

30

30

20

20

20

PlannedOrderReceipt

ProjectedAvailable

30

30

20

GrossRequirements

30

PlannedOrderReceipt
PlannedOrderRelease
D

30

ProjectedAvailable

20

20

Figure4.13Grossandnetrequirements.

ExampleProblem
Completethefollowingtable.Leadtimeforthepartistwoweeks.Theorderquantity
(lotsize)is100units.
Week1
GrossRequirements

50

45

20

ProjectedAvailable75

NetRequirements

PlannedOrderReceipt

PlannedOrderRelease

Answer
Week
Gross
Requirements

Projected
Available75

75

50

45

20

25

80

60

Net
Requirements

20

PlannedOrder
Receipt

100

PlannedOrder
Release

100

ReleasedOrders
Sofarwehavelookedattheprocessofplanningwhenordersshouldbereleasedso
workisdoneintimetomeetgrossrequirements.Inmanycases,requirementschange
daily.Acomputerbasedmaterialrequirementsplanningsystemautomatically
recalculatestherequirementsforsubassembliesandcomponentsandrecreates
plannedorderreleasestomeettheshiftsindemand.
Plannedorderreleasesarejustplannedtheyhavenotbeenreleased.Itisthe
responsibilityofthematerialplannertoreleaseplannedorders,notthecomputer.
SincetheobjectiveoftheMRPistohavematerialavailablewhenitisneededandnot
before,ordersformaterialshouldnotbereleaseduntiltheplannedorderreleasedate
arrives.Thus,anorderisnotnormallyreleaseduntiltheplannedorderisinthecurrent
week(week1).
Releasinganordermeansthatauthorizationisgiventopurchasingtobuythe
necessarymaterialortomanufacturingtomakethecomponent.
Beforeamanufacturingorderisreleased,componentavailabilitymustbechecked.
Thecomputerprogramchecksthecomponentinventoryrecordstobesurethatenough
materialisavailableand,ifso,toallocatethenecessaryquantitytothatworkorder.If
thematerialisnotavailable,thecomputerprogramwilladvisetheplannerofthe
shortage.

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Whentheauthorizationtopurchaseormanufactureisreleased,theplannedorder
receiptiscanceled,andascheduledreceiptiscreatedinitsplace.Fortheexample
showninFigure4.13,partsDandEhaveplannedorderreleasesof20scheduledfor
week1.Theseorderswillbereleasedbytheplanner,andthentheMRPrecordsfor
partsDandEwillappearasshowninFigure4.14.Noticethatscheduledreceiptshave
beencreated,replacingtheplannedorderreleases.
Whenamanufacturingorderisreleasedthecomputerwillallocatetherequired
quantitiesofaparentscomponentstothatorder.Thisdoesnotmeanthecomponents
arewithdrawnfrominventorybutthattheprojectedavailablequantityisreduced.The
allocatedquantityofcomponentsisstillininventorybuttheyarenotavailableforother
orders.Theywillstayininventoryuntilwithdrawnforuse.

Scheduledreceipts.
Scheduledreceiptsareordersplacedonmanufacturingoronavendorandrepresenta
commitmenttomakeorbuy.Foranorderinafactory,necessarymaterialsare
committed,andworkcentercapacityallocatedtothatorder.Forpurchasedparts,
similarcommitmentsaremadetothevendor.Thescheduledreceiptsrowshowsthe
quantitiesorderedandwhentheyareexpectedtobecompletedandavailable.

Openorders.
ScheduledreceiptsontheMRPrecordareopenordersonthefactoryoravendorand
aretheresponsibilityofpurchasingandofproductionactivitycontrol.Whenthegoods
arereceivedintoinventoryandavailableforuse,theorderisclosedout,andthe
scheduledreceiptdisappearstobecomepartoftheonhandinventory.
Part
Number

Week

Gross
Requirements
ScheduledReceipts
ProjectedAvailable
NetRequirements
PlannedOrder
Receipt
PlannedOrder
Release

Gross
Requirements

20

ProjectedAvailable
NetRequirements
PlannedOrder
Receipt

20

PlannedOrder
Release

20

20

ScheduledReceipts

Figure4.14Scheduledreceipts.

Netrequirements.
Thecalculationfornetrequirementscannowbemodifiedtoincludescheduled
receipts.
Netrequirements=grossrequirementsscheduledreceiptsavailableinventory

ExampleProblem
Completethefollowingtable.Leadtimefortheitemistwoweeks,andtheorder
quantityis200.Whatactionshouldbetaken?
Week

GrossRequirements

50

250

100

50

ScheduledReceipts
ProjectedAvailable
150
NetRequirements
PlannedOrder
Receipt
PlannedOrder

200

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MaterialRequirementsPlanning
Release

Week

GrossRequirements

50

250

100

ScheduledReceipts

100

200

150

ProjectedAvailable
150

200

50

50

4
50

100

NetRequirements

PlannedOrder
Receipt

200

PlannedOrder
Release

Theorderfor200unitsshouldbereleased.

BasicMRPRecord
Figure4.15showsabasicMRPrecord.Thereareseveralpointsthatareimportant:

a.
b.

Thecurrenttimeisthebeginningofthefirstperiod.
Thetoprowshowsperiods,calledtimebuckets.Theseareoftenaweek
butcabeanylengthoftimeconvenienttothecompany.Some
companiesaremovingtodailytimebuckets.
Part
Number

Gross
Requirements
Scheduled
Receipts
Projected
Available10
NetRequirements
PlannedOrder
Receipt
PlannedOrder
Release

Week
1

10

10

10

20

35

30

Figure4.15BasicMRPrecord.

c.

Thenumberofperiodsintherecordiscalledtheplanninghorizon,which
showsthenumberoffutureperiodsforwhichplansarebeingmade.It
shouldbeatleastaslongasthecumulativeproductleadtime.
Otherwise,theMRPsystemisnotabletoreleaseplannedordersof
itemsatthelowerlevelatthecorrecttime.

d.

Anitemisconsideredavailableatthebeginningofthetimebucketin
whichitisrequired.

e.

Thequantityshownintheprojectedonhandrowistheprojectedonhand
balanceattheendoftheperiod.

f.

Theimmediateormostcurrentperiodiscalledtheactionbucket.A
quantityintheactionbucketmeans

CapacityRequirementsPlanning
Asoccurredinthepreviousplanninglevels,theMRPpriorityplanmustbechecked
againstavailablecapacity.AttheMRPplanninglevel,theprocessiscalledcapacity
requirementsplanning(CRP).Thenextchapterexaminesthisprobleminsomede.tail.
Ifthecapacityisavailable,theplancanproceed.Ifnot,eithercapacityhastobe
madeavailableorthepriorityplanschanged.

LowLevelCodingandNetting
Acomponentmayresideonmorethanonelevelinabillofmaterial.Ifthisisthecase
itisnecessarytomakesurethatallgrossrequirementsforthatcomponenthavebeer
recordedbeforenettingtakesplace.ConsidertheproductshowninFigure4.16
ComponentCoccurstwiceintheproducttreeandatdifferentlevels.Itwouldbe
mistaketonettherequirementsfortheCsbeforecalculatingthegrossrequirement~
forthoserequiredforparentB.

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Theprocessofcollectingthegrossrequirementsandnettingcanbesimplified~by
usinglowlevelcodes.Thelowlevelcodeisthelowestlevelonwhichapartresides
inallbillsofmaterial.Everyparthasonlyonelowlevelcode.Thelowlevelcodesfor
thepartsintheproducttreeshowninFigure4.16are:

Part

LowLevelCode

Lowlevelcodesaredeterminedbystartingatthelowestlevelofabillofmaterialand,
workingup,recordingthelevelagainstthepart.Ifapartoccursonahigherlevel,its
existenceonthelowerlevelhasalreadybeenrecorded.
Oncethelowlevelcodesareobtained,thenetrequirementsforeachpartcanbe
calculatedusingthefollowingprocedure.Forthepurposeofthisexercise,thereisa
grossrequirementforpartAof50inweek5,allleadtimesareoneweek,andthe
followingamountsareininventory:A,20unitsB,10unitsandC,10units.

Procedure
a.

Startingatlevelzeroofthetree,determineifanyofthepartsonthat
levelhavealowlevelcodeofzero.Ifso,thosepartsoccuratno
lowerlevel,andallthegrossrequirementshavebeenrecorded.These
partscan,therefore,benettedandexplodeddowntothenextlevel,
thatis,intotheircomponents.Ifthelowlevelcodeisgreaterthan
zero,therearemoregrossrequirements,andthepartisnotnetted.In
thisexample,Ahasalowlevelcodeofzerosothereisnofurther
requirementforAsitcanbenettedandexplodedintoits
components.Figure4.17showstheresults.

b.

Thenextstepistomovedowntolevel1ontheproducttreeandto
repeattheroutinefollowedinstep1.SinceBhasalowlevelcodeof
one,all

Low Part
Level Number
Code

Gross
Requirements

Scheduled
Receipts

Projected
Available20

Week
1

50

20

20

20

20

Net
Requirements

30

Planned
OrderReceipt

30

Planned
Order
Release

30

Gross
Requirements

30

Scheduled
Receipts

Projected
Available10

Net
Requirements

Planned
OrderReceipt

Planned
Order

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Release
2

Gross
Requirements

30

Scheduled
Receipts

Projected
Available10

Net
Requirements

Planned
OrderReceipt

Planned
Order
Release

Figure4.17Nettingandexplodingzerolevelparts.
requirementsforBarerecorded,anditcanbenettedand
exploded.ThebillofmaterialforBshowsthatitismadefroma
CandaD.Figure4.18showstheresultofnettingandexploding
theBs.PartChasalowlevelcodeoftwo,whichtellsusthere
arefurtherrequirementsforCsandatthisstagetheyarenot
netted.

c.

Movingdowntolevel2ontheproducttree,wefindthatpartChasa
lowlevelcodeoftwo.ThistellsusthatallgrossrequirementsforCs
areaccountedforandthatwecanproceedanddetermineitsnet
requirements.Noticethereisarequirementfor30Csinweek4tobe
usedontheAsandarequirementof20Csinweek3tobeusedonthe
Bs.Lookingatitsbillofmaterial,weseethatitisapurchasedpartand
noexplosionisneeded.
Figure4.19showsthecompletedmaterialrequirementsplan.Theprocessof
levelbylevelnettingisnowcompletedusingthelowlevelcodesofeachpart.
Thelowlevelcodesareusedtodeterminewhenapartiseligiblefornetting
andexploding.

Low Part
Level Number
Code

Week
1

10

10

Gross
Requirements

Scheduled
Receipts

Projected
Available10

Net
Requirements

Planned
OrderReceipt

Planned
Order
Release

Gross
Requirements

30

10

20

20

20

20

30

Scheduled
Receipts

Projected
Available10

Net
Requirements

Planned
OrderReceipt

Planned
Order
Release

Gross
Requirements

20

Scheduled
Receipts

Projected
Available

Net
Requirements

Planned
OrderReceipt

Planned
Order
Release

Figure4.18Nettingandexplodingfirstlevelparts.
Inthisway,eachpartisnettedandexplodedonlyonce.Thereisnotime
consumingrenettingandreexplodingeachtimeanewrequirementismet.

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MultipleBillsofMaterial
Mostcompaniesmakemorethanoneproductandoftenusethesamecomponentsin
manyoftheirproducts.Thematerialrequirementsplanningsystemgathersthe
plannedorderreleasesfromalltheparentsandcreatesascheduleofgross
requirementsforthecomponents.Figure4.20illustrateswhathappens.PartFisa
componentofbothCandB.
Thesameprocedureusedforasinglebillofmaterialcanbeusedwhenmultiple
productsarebeingmanufactured.Allbillsmustbenettedandexplodedlevelbylevel
aswasdoneforasinglebill.
Figure4.21showstheproducttreesfortwoproducts.Botharemadefromseveral
components,but,forsimplicity,onlythosecomponentscontaininganFareshown

Low
Level
Code

Part
Number

Week
1

20

20

20

20

50

Gross
Requirements

Scheduled
Receipts

30

Projected
Available20

30

Net
Requirements

30

PlannedOrder
Receipt

PlannedOrder
Release

Gross
Requirements

10

10

10

30

Scheduled
Receipts

Projected
Available10

Net
Requirements

20

PlannedOrder
Receipt

PlannedOrder
Release

20

20

Gross
Requirements

10

10

20

30

Scheduled
Receipts

Projected
Available10

30

Net
Requirements

10

30

PlannedOrder
Receipt

PlannedOrder
Release

10

10

30

Gross
Requirements

20

Scheduled
Receipts

Projected
Available

Net
Requirements

20

PlannedOrder
Receipt

PlannedOrder
Release

20

20

Figure4.19Completedmaterialrequirementsplan.
intheproducttree.NotebothhaveFasacomponentbutatdifferentlevelsintheir
producttree.Allleadtimesareoneweek.Thequantitiesrequiredareshownin
parenthesesthatis,twoCsarerequiredtomakeanA,oneFisrequiredtomakeaC,
andtwoFsareneededtomakeaB.Figure4.22showsthecompletedmaterial

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requirementsplanthatwouldresultif50Aswererequiredinweek5and30Bsinweek
3.
Scrapisusuallystatedasascrapallowance.Forexample,aprocessmaygenerate
15%scrap.Thenetrequirementmightbefor300units.Withascrapallowanceof15%
theprocesswouldberequiredtomake330(1.0.15)353units.

4.UsingTheMaterialRequirementsPlan
Thepeoplewhomanagethematerialrequirementsplanningsystemareplanners.Theyareresponsible
formakingdetaileddecisionsthatkeeptheflowofmaterialmovinginto,through,andoutofthe
factory.Inmanycompanieswheretherearethousandsofpartstomanage,plannersareusually
organizedintologicalgroupingsbasedonthesimilarityofpartsorsupply.
Thebasicresponsibilitiesofaplannerareto:

a.

Launch(release)orderstopurchasingormanufacturing.

b.
c.
d.

Rescheduleduedatesofopen(existing)ordersasrequired.

e.

Coordinatewithotherplanners,masterproductionschedulers,productionactivitycontrol,and
purchasingtoresolveproblems.

Reconcileerrorsandtrytofindtheircause.
Solvecriticalmaterialshortagesbyexpeditingorreplanning.

Low
Level
Code

Part
Number

Week
1

Gross
Requirements

50

Scheduled
Receipts

Projected
Available20

20

20

20

20

Net
Requirements

30

PlannedOrder
Receipt

30

PlannedOrder
Release

30

Gross
Requirements

30

Scheduled
Receipts

Projected
Available10

10

10

Net

20

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Requirements

PlannedOrder
Receipt

20

PlannedOrder
Release

20

Gross
Requirements

60

Scheduled
Receipts

Projected
Available10

10

10

10

Net
Requirements

50

PlannedOrder
Receipt

50

PlannedOrder
Release

50

Gross
Requirements

40

50

Scheduled
Receipts

Projected
Available

Net
Requirements

40

50

PlannedOrder
Receipt

40

50

PlannedOrder
Release

40

50

Figure4.22Partialmaterialrequirementsplan.
Thematerialplannerworkswiththreetypesoforders:planned,released,and

Plannedorders
Plannedordersareautomaticallyscheduledandcontrolledbythecomputer.Asgross
requirements,projectedavailableinventory,andscheduledreceiptschange,the
computerrecalculatesthetimingandquantitiesofplannedorderreleases.TheMRP
programrecommendstotheplannerthereleaseofanorderwhentheorderentersthe
actionbucketbutdoesnotreleasetheorder.

Releasedorders.
Releasing,orlaunching,aplannedorderistheresponsibilityoftheplanner.When
released,theorderbecomesanopenordertothefactoryortopurchasingandappears
ontheMRPrecordasascheduledreceipt.Itisthenunderthecontroloftheplanner,
whomayexpedite,delay,orevencanceltheorder.

Firmplannedorders.
ThecomputerbasedMRPsystemautomaticallyrecalculatesplannedordersasthe
grossrequirementschange.Attimes,theplannermayprefertoholdaplannedorder
firmagainstchangesinquantityandtimedespitewhatthecomputercalculates.This
mightbenecessarybecauseoffutureavailabilityofmaterialorcapacityorspecial
demandsonthesystem.Theplannercantellthecomputerthattheorderisnottobe
changedunlesstheplanneradvisesthecomputertodoso.Theorderisfirmedor
frozenagainstthelogicofthecomputer.
TheMRPsoftwarenets,offsets,andexplodesrequirementsandcreatesplannedorder
releases.Itkeepsprioritiescurrentforallplannedordersaccordingtochangesingross
requirementsforthepart.Butitdoesnotissuepurchaseormanufacturingordersor
rescheduleopenorders.However,itdoesprintactionorexceptionmessages
suggestingthattheplannershouldactandwhatkindofactionmightbeappropriate.

Exceptionmessages.
Ifthemanufacturingprocessisundercontrolandthematerialrequirementsplanning
systemisworkingproperly,thesystemwillworkaccordingtoplan.However,
sometimesthereareproblemsthatneedtheattentionofthe
planner.AgoodMRPsystemgeneratesexceptionmessagestoadvisetheplanner
whensomeeventneedsattention.Followingaresomeexamplesofsituationsthatwill
generateexceptionmessages.
Componentsforwhichplannedordersareintheactionbucketandwhich
shouldbeconsideredforrelease.
Openordersforwhichthetimingorquantityofscheduledreceiptsdoes
notsatisfytheplan.Perhapsascheduledreceiptistimedtoarrivetoo

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MaterialRequirementsPlanning
earlyorlate,anditsduedateshouldberevised.
Situationsinwhichthestandardleadtimeswillresultinlatedeliveryofa
zerolevelpart.Thissituationmightcallforexpeditingtoreducethe
standardleadtimes.

Transactionmessages.
TransactionmessagesmeanthattheplannermusttelltheMRPsoftwareofall
actionstakenthatwillinfluencetheMRPrecords.Forexample,whentheplanner
releasesanorder,orascheduledreceiptisreceived,orwhenanychangetothedata
occurs,theMRPprogrammustbetold.Otherwise,therecordswillbeinaccurate,and
theplanwillbecomeunworkable.
Materialrequirementsplannersmustmanagethepartsforwhichtheyareresponsible.
Thismeansnotonlyreleasingorderstopurchasingandthefactory,reschedulingdue
datesofopenorders,andreconcilingdifferencesandinconsistencies,butalsofinding
waystoimprovethesystemandremovingthecausesofpotentialerror.Iftheright
componentsaretobeintherightplaceattherighttime,theplannermustmanagethe
process.

ManagingtheMaterialRequirementsPlan
Theplannerreceivesfeedbackfrommanysourcessuchas:
Suppliersactionsthroughpurchasing.
Changestoopenordersinthefactorysuchasearlyorlatecompletionsor
differingquantities.
Managementactionsuchaschangingthemasterproductionschedule.
Theplannermustevaluatethisfeedbackandtakecorrectiveactionifnecessary.The
plannermustconsiderthreeimportantfactorsinmanagingthematerialrequirements
plan.

Priority.
Priorityreferstomaintainingthecorrectduedatesbyconstantlyevaluatingthetrue
duedateneedforreleasedordersand,ifnecessary,expeditingordcexpediting.
ConsiderthefollowingMRPrecord.Theorderquantityis300unitsandtheleadtimeis
threeweeks

Week
Gross
Requirements
ScheduledReceipts

100

50

100

150

200

ProjectedAvailable
150

50

NetRequirements

PlannedOrder
Receipt

PlannedOrder
Release

300
0

300

200

50

150

150

300

Whatwillhappenifthegrossrequirementsinweek2arechangedfrom50unitsto
150?TheMRPrecordwilllooklikethefollowing.

Week
Gross
Requirements

100

150

100

150

200

ScheduledReceipts

50

300

250

50

ProjectedAvailable
150

300

100

100

50

NetRequirements

300

PlannedOrder
Receipt

PlannedOrder
Release

Notethatthereisashortageof100unitsinweek2andthattheplannedorderrelease
originallyinweek2isnowinweek1.Whatcantheplannerdo?Onesolutionisto
expeditethescheduledreceiptof300unitsfromweek3toweek2.Ifthisisnot
possible,theextra100unitswantedinweek2mustberescheduledintoweek3.Also,
thereisnowaplannedorderreleaseinweek1,andthisordershouldbereleased.

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Bottomupreplanning.
Actiontocorrectforchangedconditionsshouldoccuraslowintheproductstructure
aspossible.Supposethepartinthepreviousexampleisacomponentofanotherpart.
Thefirstalternativeistoexpeditethescheduledreceiptof300intoweek2.Ifthiscan
bedone,thereisnoneedtomakeanychangestotheparent.Ifthe300unitscannot
beexpedited,theplannedorderreleaseandnetrequirementoftheparentmustbe
changed.

Reducingsystemnervousness.
Sometimesrequirementschangerapidlyandbysmallamounts,causingthematerial
requirementsplantochangebackandforth.Theplannermustjudgewhetherthe
changesareimportantenoughtoreacttoandwhetheranordershouldbereleased.
Onemethodofreducingsystemnervousnessisfirmplannedorders.

ExampleProblem
AstheMRPplanner,youarriveatworkMondaymorningandlookattheMRPrecord
forpart2876asshownbelow.
Orderquantity=30units
Leadtime=2weeks

Week

GrossRequirements

35

10

15

30

15

20

ScheduledReceipts

30

ProjectedAvailable
20

15

20

20

15

NetRequirements

10

10

15

PlannedOrder
Receipt

30

30

30

PlannedOrder
Release

30

30

30

Thecomputerdrawsattentiontotheneedtoreleasetheplannedorderfor30inweek
1.Eitheryoureleasethisorder,ortherewillbeashortageinweek3.Duringthefirst
week,thefollowingtransactionstakeplace:

a.

Only25unitsofthescheduledreceiptarereceivedintoinventory.The
balancei5scrapped.

b.
c.

Thegrossrequirementforweek3ischangedto10.

d.
e.

Therequirementforweek7is15.

f.

The35grossrequirementforweek1isissuedfrominventory.

g.

Theplannedorderreleasefor30inweek1isreleasedandbecomesa
scheduledreceiptinweek3.

Thegrossrequirementforweek4isincreasedto50.

Aninventorycountrevealstherearetenmoreininventorythanthe
recordshows

Asthesetransactionsoccurduringthefirstweek,youmustenterthesechangesinthe
computerrecord.Atthebeginningofthenextweek,theMRPrecordappearsas
follows:
Orderquantity=30units
Leadtime=2weeks

Week

GrossRequirements

10

10

50

15

20

15

ScheduledReceipts

10

30

ProjectedAvailable20

30

10

25

20

NetRequirements

20

10

PlannedOrderReceipt

30

30

30

PlannedOrderRelease

30

30

30

Theopeningonhandbalanceforweek2is20(20+25+1035=20).Theplannec
orderreleaseoriginallysetinweek4hasshiftedtoweek3.Anotherplannedorderha~
beencreatedforreleaseinweek5.Moreimportantly,thescheduledreceiptinwee~3
willnotbeneededuntilweek4.Youshouldreschedulethistoweek4.Theplannec
orderinweek2shouldbereleasedandbecomeascheduledreceiptinweek4.

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