One?approach?that?has?been?used?in?the?past?for?material?planning?is?to?stock?all?items?at?all?times?(sometimes?called?just?in?case?inventory?control).?This?approach?requires?that?huge?inventories?be?maintained,?resulting?in?extensive?warehouse?space?and?a?large?amount?of?money?invested?in?that?inventory.?Even?then,?many?companies?found?that?certain?crucial?items?used?in?many?of?their?products?always?seemed?to?run?out?at?the?wrong?time.?No?matter?how?much?inventory?is?kept,?a?large?demand?for?certain?parts?can?deplete?supplies?quickly.
Independent?Versus?Dependent?Demand
Inventory?can?also?be?classified?according?to?the?type?of?demand?it?intends?to?serve.?The?type?of?demand?determines?which?methods?are?used?to?manage?inventory.?Independent?demand?is?demand?that?is?not?controlled?directly?by?the?company,?such?as?demand?from?customers.?Independent?demand?items?usually?include?finished?products,?such?as?the?completed?tricycle?or?replacement?parts?sold?to?customers.?Demand?for?such?items?is?generally?independent?of?a?company’s?production?plans.?Chapter?10?will?discuss?procedures?for?managing?this?type?of?inventory.

?iStockphoto/Thinkstock
A?bill?of?materials?is?like?a?recipe,?listing?the?materials?needed?and?the?quantities?of?each.?It?also?provides?information?about?how?the?materials?combine?to?create?the?final?product.
Dependent?demand?is?usually?demand?for?an?item?that?is?generated?by?a?company’s?production?process.?One?example?would?be?the?wheels?for?tricycles?that?a?company?produces.?Each?tricycle?has?three?wheels;?if?the?company?plans?to?produce?200?tricycles?in?a?given?week,?it?will?need?600?(200?נ3)?wheels?that?week.?Thus,?the?demand?for?wheels?depends?on?the?production?of?tricycles.?To?manage?inventory?for?dependent?demand?items,?companies?often?use?material?requirements?planning?(MRP).
The?idea?behind?MRP?is?simple;?it?is?like?planning?a?meal.?A?few?days?before?preparing?the?meal,?a?decision?is?made?about?what?to?serve.?The?person?who?will?prepare?the?meal?examines?the?recipe?to?determine?what?ingredients?are?required?to?make?the?meal,?checks?the?pantry?to?determine?which?ingredients?are?on?hand,?and?makes?a?list?of?the?ingredients?that?need?to?be?purchased.?A?trip?to?the?store?is?made?to?secure?items?that?are?not?currently?in?stock.?The?same?basic?approach?is?used?in?material?requirements?planning.
The?master?schedule?is?analogous?to?the?menu,?which?states?what?will?be?served?for?the?meal.?Recall?that?the?master?schedule?indicates?which?items?and?how?many?of?each?item?to?produce.?A?bill?of?materials?is?like?the?list?of?ingredients?in?the?recipe,?which?tells?the?cook?the?amount?required?of?each.?The?bill?of?materials?(BOM)?lists?the?materials?needed?and?the?quantities?of?each.?Like?the?recipe,?it?also?provides?information?about?how?the?materials?come?together.?Inventory?records?will?show?how?much?is?on?hand.?From?this,?it?can?be?determined?which?parts?or?materials?will?come?up?short?and?how?much?more?of?each?item?is?needed.
Data?Files?Used?by?MRP
For?companies?today,?MRP?is?a?computerized?information?system.?As?such,?it?requires?data?to?provide?the?information?needed?for?decision?making.?The?three?most?important?data?requirements?of?MRP?are?the?master?production?schedule,?bill?of?materials,?and?inventory?records.
? Master?Schedule?File?
For?MRP?purposes,?the?master?schedule?is?what?”drives”?the?system?and?generates?material?requirements.?As?mentioned?earlier,?this?master?schedule?may?be?at?the?finished-products?level?for?companies?such?as?Maine?Woods?that?manufacture?standard?products.?However,?for?companies?making?customized?products,?the?master?schedule?may?be?at?the?level?of?components?or?subassemblies.
? Bill?of?Materials?File
A?bill?of?materials?serves?two?purposes.?First,?it?lists?all?the?components?of?a?product?and?the?quantities?needed?to?make?the?product.?Second,?it?shows?the?relationships?among?those?components,?which?indicates?product?structure,?or?how?the?items?fit?together.?For?example,?Figure?9.13?shows?an?exploded?view?of?the?tricycle?produced?by?Maine?Woods.?In?manufacturing?the?tricycle,?the?front?wheel,?its?supports,?the?axle,?and?the?steering?column?are?sub-assembled?before?the?entire?tricycle?is?put?together.?Likewise,?the?seat?and?rear?axle?supports?are?sub-assembled?before?final?assembly.
One?way?to?indicate?these?subassemblies?is?through?a?product?structure?tree?diagram,?as?shown?in?Figure?9.14.?Notice?that?all?the?parts?brought?together?at?final?assembly?are?listed?together?on?level?1.?Any?parts?that?are?components?of?subassemblies?are?listed?on?level?2.?Connecting?lines?indicate?which?parts?belong?to?which?subassembly.
Figure?9.13:?Exploded?view?of?Maine?Woods’?tricycle

One?way?to?indicate?these?subassemblies?is?through?a?product?structure?tree?diagram,?as?shown?in?Figure?9.14.?Notice?that?all?the?parts?brought?together?at?final?assembly?are?listed?together?on?level?1.?Any?parts?that?are?components?of?subassemblies?are?listed?on?level?2.?Connecting?lines?indicate?which?parts?belong?to?which?subassembly.
Figure?9.14:?Product?structure?tree?for?Maine?Woods’?tricycle

An?indented?bill?of?materials?is?another?way?to?provide?structure?to?the?bill?of?materials.?A?tree?diagram?is?visually?appealing,?but?is?difficult?to?use?in?computerized?MRP?systems.?An?indented?bill?of?materials?is?used?by?MRP?to?provide?information?about?product?structure.?Each?item?is?identified?with?a?level,?as?shown?in?Figure?9.14.?An?indented?bill?of?materials?illustrates?each?level?indented?from?the?one?above?it.?Table?9.2?is?the?indented?bill?of?materials?for?Maine?Woods’?tricycle.
Table?9.2:?Indented?bill?of?materials?for?Maine?Woods’?tricycle
Level Part?no. Quantity Description
0 127 1 Tricycle
1 3417 1 Handle
1 2973 1 Rear?axle
1 463 1 Front?assembly
2 3987 2 Axle?support?(front)
2 5917 1 Wheel
2 2673 1 Front?axle
2 3875 1 Steering?column
1 5917 2 Wheel
1 587 1 Seat?assembly
2 4673 1 Seat
2 3965 2 Axle?support?(rear)
? Inventory?File
In?order?for?MRP?to?work,?accurate?inventory?records?must?be?kept.?For?most?companies,?this?accuracy?requires?continually?updating?inventory?records?as?items?are?withdrawn?or?added.?To?automate?this?function,?many?use?bar?codes,?which?are?similar?to?the?universal?product?codes?(UPCs)?you?see?on?items?at?a?grocery?store;?however,?mistakes?can?be?made?despite?automation.?Cycle?counting?is?a?way?to?reconcile?inventory?records?and?correct?errors,?and?many?companies?using?MRP?also?employ?cycle?counting.?Using?this?method,?a?physical?count?of?each?part?is?made?at?least?once?during?its?replenishment?cycle,?which?is?the?period?between?orders?to?replenish?inventory.
Displaying?MRP?Data
The?objective?of?MRP?is?to?ensure?that?the?correct?quantities?of?component?parts?are?available?at?the?proper?time?to?produce?finished?products?according?to?the?master?production?schedule.?This?section?describes?how?that?is?done?for?items?that?appear?immediately?below?the?finished?product?in?the?product?structure?tree?diagram.
The?information?obtained?from?bills?of?materials,?inventory?records,?and?the?master?schedule?can?be?shown?together?in?the?diagram?of?Figure?9.15,?which?is?the?table?commonly?used?to?calculate?and?display?MRP?information.
Figure?9.15:?Table?for?MRP

The?table?in?Figure?9.15?illustrates?time?periods?across?the?top.?These?represent?time?periods?for?planning?purposes,?or?time?buckets.?The?timebuckets?correspond?to?the?master?product?schedule,?which?is?usually?set?in?weeks.?The?purpose?of?using?these?time?periods?is?to?state?the?total?quantity?requirements?for?component?parts?and?materials?needed?during?each?time?bucket.?This?process?of?stating?requirements?by?time?bucket?is?often?called?time?phasing.
The?first?row?in?Figure?9.15?is?labeled?gross?requirements.?Gross?requirements?represent?the?total?quantity?needed?of?a?particular?item?in?each?time?bucket,?based?on?the?master?production?schedule?and?the?bill?of?materials,?regardless?of?current?inventory?of?that?item.?The?second?row,?scheduled?receipts,?shows?whether?any?orders?for?that?item?have?been?placed?previously,?but?not?yet?received.?Entries?in?this?row?indicate?when?the?order?should?arrive?and?how?many?units?should?be?enclosed.?Projected?ending?inventory?shows?the?planned?number?of?units?that?should?remain?at?the?end?of?each?time?bucket?after?all?transactions?of?that?period?are?complete.?If?the?number?of?units?available?during?a?period?(projected?ending?inventory?from?the?previous?period?plus?receipts)?is?not?sufficient?to?cover?gross?requirements,?then?the?row?labeled?netrequirements?indicates?the?number?of?units?the?company?is?short.?An?entry?in?net?requirements?indicates?that?a?replenishment?order?will?need?to?be?placed.?Thus,?the?last?two?rows?show?planned?receipts?and?planned?order?releases.?The?planned?receipts?row?shows?when?orders?must?arrive?in?order?to?avoid?a?shortage?of?necessary?parts?or?materials,?as?indicated?by?the?net?requirements?row.?The?planned?order?releases?row?indicates?the?time?periods?in?which?those?orders?must?be?released?(or?placed)?to?arrive?at?the?correct?time.?The?difference?between?scheduled?receipts?and?planned?receipts?is?that?scheduled?receipts?correspond?to?orders?that?have?actually?been?placed?sometime?in?the?past,?but?not?yet?received.?Planned?receipts?correspond?to?orders?planned?for?release,?but?not?yet?released.?Both?scheduled?receipts?and?planned?receipts?are?included?as?units?available?in?the?MRP?record.
MRP?Logic
The?information?in?Figure?9.15?may?be?completed?for?each?part?of?raw?material?as?follows:
? Obtain?the?bill?of?materials?for?the?appropriate?end?product.
? Begin?with?a?level?1?item?from?the?bill?of?materials.
? Multiply?the?number?of?units?of?the?level?1?item?needed?per?unit?of?finished?product?(from?the?bill?of?materials)?by?the?master?schedule?quantity?for?each?time?bucket.?Insert?this?as?gross?requirements?for?the?appropriate?time?bucket.?Ordinarily,?the?master?schedule?indicates?the?number?of?units?of?finished?product?to?be?produced?in?each?time?period,?so?the?appropriate?time?bucket?will?be?that?same?time?period.?In?some?cases,?however,?the?master?schedule?indicates?completion?of?production.?If?so,?the?time?period?when?production?begins?is?the?appropriate?time?bucket?for?gross?requirements.
? Enter?any?scheduled?receipts?of?the?item,?based?on?lead?time?and?orders?previously?released,?in?the?appropriate?time?buckets.
? Determine?how?many?units?should?be?in?inventory?at?the?start?of?the?first?time?bucket.?Enter?this?number?in?the?square?to?the?left?of?the?first?time?bucket.
? Perform?the?following?steps?for?each?time?bucket,?beginning?with?the?first,?until?the?end?of?the?planning?horizon?is?reached.?Add?projected?ending?inventory?from?the?preceding?time?bucket?to?scheduled?receipts?for?the?present?period.?If?this?total?equals?or?exceeds?gross?requirements?for?the?present?period,?go?to?step?a.?If?not,?go?to?step?b.
? If?gross?requirements?in?the?time?bucket?being?planned?are?less?than?or?equal?to?the?sum?of?projected?ending?inventory?from?the?preceding?time?bucket?and?scheduled?receipts?for?the?current?time?bucket,?enter?the?difference?as?projected?ending?inventory?in?the?current?period.?Leave?net?requirement?blank,?and?repeat?this?step?for?the?next?time?bucket.
? If?gross?requirements?are?greater?than?the?sum?of?projected?ending?inventory?from?the?preceding?time?bucket?and?scheduled?receipts?for?the?current?time?bucket,?enter?the?difference?as?net?requirements.?Leave?projected?ending?inventory?blank?for?the?present?time?period?until?the?following?sub-steps?have?been?performed.
? For?any?period?in?which?net?requirements?appear,?plan?an?order?release?and?corresponding?receipt?to?cover?the?net?requirement.?(This?ordering?approach?is?termed?lot-for-lot.?Net?requirements?from?several?periods?may?be?combined?into?one?planned?order?release?using?other?lot?sizing?methods.)
? Subtract?net?requirements?from?planned?receipts,?and?enter?the?total?as?projected?ending?inventory?for?the?current?time?bucket.?Proceed?to?step?a?for?the?next?time?bucket.
Problem
Consider?the?Maine?Woods?Company.?The?bill?of?materials?for?tricycles,?shown?in?Table?9.2,?indicates?the?front?assembly?(part?#463)?is?a?level?1?item.?The?inventory?file?for?this?item?shows?100?units?are?expected?to?be?in?inventory?at?the?end?of?December.?Production?lead?time,?the?time?it?takes?to?receive?front?assemblies?after?more?are?ordered?into?production,?is?two?weeks.?An?order?for?500?front?assemblies?was?released?earlier?and?is?scheduled?for?receipt?during?week?1?of?January.?Using?the?master?schedule?for?tricycles?of?Figure?9.12,?determine?planned?order?releases?for?front?assemblies.?The?production?for?weeks?5?and?6?is?set?at?250?units?each.
Step?1.?The?bill?of?materials?(Table?9.2)?indicates?one?front?assembly?is?needed?for?each?tricycle.
Step?2.?Front?assemblies?are?a?level?1?item,?so?begin?planning?with?them.
Step?3.?The?master?production?schedule?during?weeks?1?through?6?is?shown?at?the?top?of?Figure?9.16.?Because?one?front?assembly?is?needed?for?each?tricycle,?and?the?master?schedule?shows?units?to?be?produced?during?each?week,?the?gross?requirements?for?front?assemblies?in?each?week?will?be?the?same?as?the?master?schedule?quantities?of?tricycles.
Step?4.?The?scheduled?receipt?of?500?units?is?entered?for?week?1.
Step?5.?The?100?front?assemblies?projected?to?be?in?inventory?at?the?end?of?December?are?entered?in?the?projected?ending?inventory?box?to?the?left?of?week?1.
Step?6.?Week?1:?Gross?requirements?in?week?1?are?less?than?projected?ending?inventory?from?the?previous?week,?plus?scheduled?receipts?for?week?1.?The?difference?is?entered?as?projected?ending?inventory?for?week?1,?as?shown?in?Figure?9.16.
(100?+?500)?-?250?=?350
Week?2:?Gross?requirements?in?week?2?are?less?than?projected?ending?inventory?from?week?1.?Projected?ending?inventory?for?week?2?is:
350?-?285?=?65,
as?shown?in?Figure?9.17.
Figure?9.16:?MRP?for?front?assemblies

Figure?9.17:?Partially?completed?MRP:?Front?assemblies

Week?3:?Gross?requirements?in?week?3?are?greater?than?projected?ending?inventory?from?week?2?by?190?units.?This?difference?is?entered?as?net?requirements?for?week?3.
? An?order?for?week?3?net?requirements?must?be?planned?for?receipt?in?week?3.?Because?the?lead?time?is?two?weeks,?the?order?must?be?planned?for?release?in?week?1?(week?3?minus?2?weeks?lead?time?=?week?1).
? The?planned?receipts?for?week?3?are?190?units,?and?net?requirements?are?190?units.?Therefore,?the?projected?ending?inventory?for?week?3?will?be?zero.
Weeks?4?through?6?are?completed?in?the?same?way,?producing?the?results?shown?in?Figure?9.18.
Figure?9.18:?Completed?MRP:?Front?assemblies

In?this?example,?the?planned?order?releases?were?determined?for?front?assemblies,?which?are?a?level?1?item.?The?gross?requirements?for?all?level?1?items?will?be?determined?from?the?master?production?schedule.?But?items?that?are?level?2?in?the?bill?of?materials?will?be?used?in?making?level?1?items.?Thus,?their?gross?requirements?will?be?determined?from?planned?order?releases?for?level?1?items,?not?from?the?master?schedule.?For?example,?the?front?assemblies?that?were?just?planned?using?MRP?are?a?level?1?item.?However,?the?front?axle?supports?used?in?that?assembly?are?level?2.?Therefore,?the?gross?requirements?for?front?axle?supports?will?be?determined?by?the?planned?order?releases?for?front?assemblies,?as?shown?in?Figure?9.19.
Figure?9.19:?MRP?for?a?level?2?item:?Front?axle?supports

Coordinating?Purchasing
Many?times,?one?particular?part?or?subassembly?will?be?used?in?more?than?one?product.?In?such?cases,?the?gross?requirements?for?that?part?must?take?into?account?all?planned?production?of?products?or?subassemblies?that?use?that?part.
Problem
The?front?wheel?in?the?Maine?Woods?tricycle?is?exactly?the?same?as?the?two?rear?wheels.?However,?the?front?wheel?is?part?of?a?subassembly,?while?the?rear?wheels?are?not.?Furthermore,?the?wheels?on?Maine?Woods’?scooter?are?also?the?same?as?the?wheels?used?on?its?tricycle.?Therefore,?gross?requirements?for?wheels?(part?#5917)?will?be?the?sum?of?planned?order?releases?for?tricycle?front?assemblies?(Figure?9.18)?plus?the?master?schedule?quantities?for?tricycles?(Figure?9.12),?multiplied?by?two,?and?scooters?(Figure?9.12),?also?multiplied?by?two,?as?shown?in?Figure?9.20.
Figure?9.20:?Combining?demand?from?multiple?sources?and?levels

MRP?Coordinates?Purchasing?and?Operations
The?output?from?MRP?is?a?schedule?of?planned?order?releases.?There?are?two?types?of?orders.?A?shop?order?authorizes?production?to?make?certain?component?parts?or?subassemblies.?A?purchase?order?is?an?authorization?for?a?vendor?to?supply?parts?or?materials.?If?the?orders?request?component?parts?or?subassemblies?made?by?the?company?itself,?then?a?shop?order?will?be?released.?If?the?planned?order?release?is?for?a?part?or?raw?material?that?is?purchased?from?an?outside?vendor,?then?a?purchase?order?will?be?released.
The?operations?part?of?a?company?is?usually?the?department?responsible?for?running?MRP.?Thus,?operations?are?aware?that?the?release?of?a?shop?order?means?that?a?certain?part?or?component?should?be?started?in?production?because?a?need?will?exist?for?it?sometime?in?the?near?future.?Because?operations?generated?the?shop?order?release,?they?will?be?aware?that?it?is?a?valid?order?and?that?it?should?be?produced?in?the?quantity?indicated.?Purchase?orders?are?usually?handled?by?a?purchasing?or?procurement?department.?If?the?order?releases?generated?by?MRP?are?to?be?carried?out,?then?the?purchasing?department?must?be?aware?of?what?the?MRP?system?is?doing?and?trust?in?the?output?it?generates.?Close?coordination?between?the?operations?and?purchasing?departments?is?essential.

?

One?approach?that?has?been?used?in?the?past?for?material?planning?is?to?stock?all?items?at?all?times?(sometimes?called?just?in?case?inventory?control).?This?approach?requires?that?huge?inventories?be?maintained,?resulting?in?extensive?warehouse?space?and?a?large?amount?of?money?invested?in?that?inventory.?Even?then,?many?companies?found?that?certain?crucial?items?used?in?many?of?their?products?always?seemed?to?run?out?at?the?wrong?time.?No?matter?how?much?inventory?is?kept,?a?large?demand?for?certain?parts?can?deplete?supplies?quickly.
Independent?Versus?Dependent?Demand
Inventory?can?also?be?classified?according?to?the?type?of?demand?it?intends?to?serve.?The?type?of?demand?determines?which?methods?are?used?to?manage?inventory.?Independent?demand?is?demand?that?is?not?controlled?directly?by?the?company,?such?as?demand?from?customers.?Independent?demand?items?usually?include?finished?products,?such?as?the?completed?tricycle?or?replacement?parts?sold?to?customers.?Demand?for?such?items?is?generally?independent?of?a?company’s?production?plans.?Chapter?10?will?discuss?procedures?for?managing?this?type?of?inventory.

?iStockphoto/Thinkstock
A?bill?of?materials?is?like?a?recipe,?listing?the?materials?needed?and?the?quantities?of?each.?It?also?provides?information?about?how?the?materials?combine?to?create?the?final?product.
Dependent?demand?is?usually?demand?for?an?item?that?is?generated?by?a?company’s?production?process.?One?example?would?be?the?wheels?for?tricycles?that?a?company?produces.?Each?tricycle?has?three?wheels;?if?the?company?plans?to?produce?200?tricycles?in?a?given?week,?it?will?need?600?(200?נ3)?wheels?that?week.?Thus,?the?demand?for?wheels?depends?on?the?production?of?tricycles.?To?manage?inventory?for?dependent?demand?items,?companies?often?use?material?requirements?planning?(MRP).
The?idea?behind?MRP?is?simple;?it?is?like?planning?a?meal.?A?few?days?before?preparing?the?meal,?a?decision?is?made?about?what?to?serve.?The?person?who?will?prepare?the?meal?examines?the?recipe?to?determine?what?ingredients?are?required?to?make?the?meal,?checks?the?pantry?to?determine?which?ingredients?are?on?hand,?and?makes?a?list?of?the?ingredients?that?need?to?be?purchased.?A?trip?to?the?store?is?made?to?secure?items?that?are?not?currently?in?stock.?The?same?basic?approach?is?used?in?material?requirements?planning.
The?master?schedule?is?analogous?to?the?menu,?which?states?what?will?be?served?for?the?meal.?Recall?that?the?master?schedule?indicates?which?items?and?how?many?of?each?item?to?produce.?A?bill?of?materials?is?like?the?list?of?ingredients?in?the?recipe,?which?tells?the?cook?the?amount?required?of?each.?The?bill?of?materials?(BOM)?lists?the?materials?needed?and?the?quantities?of?each.?Like?the?recipe,?it?also?provides?information?about?how?the?materials?come?together.?Inventory?records?will?show?how?much?is?on?hand.?From?this,?it?can?be?determined?which?parts?or?materials?will?come?up?short?and?how?much?more?of?each?item?is?needed.
Data?Files?Used?by?MRP
For?companies?today,?MRP?is?a?computerized?information?system.?As?such,?it?requires?data?to?provide?the?information?needed?for?decision?making.?The?three?most?important?data?requirements?of?MRP?are?the?master?production?schedule,?bill?of?materials,?and?inventory?records.
? Master?Schedule?File?
For?MRP?purposes,?the?master?schedule?is?what?”drives”?the?system?and?generates?material?requirements.?As?mentioned?earlier,?this?master?schedule?may?be?at?the?finished-products?level?for?companies?such?as?Maine?Woods?that?manufacture?standard?products.?However,?for?companies?making?customized?products,?the?master?schedule?may?be?at?the?level?of?components?or?subassemblies.
? Bill?of?Materials?File
A?bill?of?materials?serves?two?purposes.?First,?it?lists?all?the?components?of?a?product?and?the?quantities?needed?to?make?the?product.?Second,?it?shows?the?relationships?among?those?components,?which?indicates?product?structure,?or?how?the?items?fit?together.?For?example,?Figure?9.13?shows?an?exploded?view?of?the?tricycle?produced?by?Maine?Woods.?In?manufacturing?the?tricycle,?the?front?wheel,?its?supports,?the?axle,?and?the?steering?column?are?sub-assembled?before?the?entire?tricycle?is?put?together.?Likewise,?the?seat?and?rear?axle?supports?are?sub-assembled?before?final?assembly.
One?way?to?indicate?these?subassemblies?is?through?a?product?structure?tree?diagram,?as?shown?in?Figure?9.14.?Notice?that?all?the?parts?brought?together?at?final?assembly?are?listed?together?on?level?1.?Any?parts?that?are?components?of?subassemblies?are?listed?on?level?2.?Connecting?lines?indicate?which?parts?belong?to?which?subassembly.
Figure?9.13:?Exploded?view?of?Maine?Woods’?tricycle

One?way?to?indicate?these?subassemblies?is?through?a?product?structure?tree?diagram,?as?shown?in?Figure?9.14.?Notice?that?all?the?parts?brought?together?at?final?assembly?are?listed?together?on?level?1.?Any?parts?that?are?components?of?subassemblies?are?listed?on?level?2.?Connecting?lines?indicate?which?parts?belong?to?which?subassembly.
Figure?9.14:?Product?structure?tree?for?Maine?Woods’?tricycle

An?indented?bill?of?materials?is?another?way?to?provide?structure?to?the?bill?of?materials.?A?tree?diagram?is?visually?appealing,?but?is?difficult?to?use?in?computerized?MRP?systems.?An?indented?bill?of?materials?is?used?by?MRP?to?provide?information?about?product?structure.?Each?item?is?identified?with?a?level,?as?shown?in?Figure?9.14.?An?indented?bill?of?materials?illustrates?each?level?indented?from?the?one?above?it.?Table?9.2?is?the?indented?bill?of?materials?for?Maine?Woods’?tricycle.
Table?9.2:?Indented?bill?of?materials?for?Maine?Woods’?tricycle
Level Part?no. Quantity Description
0 127 1 Tricycle
1 3417 1 Handle
1 2973 1 Rear?axle
1 463 1 Front?assembly
2 3987 2 Axle?support?(front)
2 5917 1 Wheel
2 2673 1 Front?axle
2 3875 1 Steering?column
1 5917 2 Wheel
1 587 1 Seat?assembly
2 4673 1 Seat
2 3965 2 Axle?support?(rear)
? Inventory?File
In?order?for?MRP?to?work,?accurate?inventory?records?must?be?kept.?For?most?companies,?this?accuracy?requires?continually?updating?inventory?records?as?items?are?withdrawn?or?added.?To?automate?this?function,?many?use?bar?codes,?which?are?similar?to?the?universal?product?codes?(UPCs)?you?see?on?items?at?a?grocery?store;?however,?mistakes?can?be?made?despite?automation.?Cycle?counting?is?a?way?to?reconcile?inventory?records?and?correct?errors,?and?many?companies?using?MRP?also?employ?cycle?counting.?Using?this?method,?a?physical?count?of?each?part?is?made?at?least?once?during?its?replenishment?cycle,?which?is?the?period?between?orders?to?replenish?inventory.
Displaying?MRP?Data
The?objective?of?MRP?is?to?ensure?that?the?correct?quantities?of?component?parts?are?available?at?the?proper?time?to?produce?finished?products?according?to?the?master?production?schedule.?This?section?describes?how?that?is?done?for?items?that?appear?immediately?below?the?finished?product?in?the?product?structure?tree?diagram.
The?information?obtained?from?bills?of?materials,?inventory?records,?and?the?master?schedule?can?be?shown?together?in?the?diagram?of?Figure?9.15,?which?is?the?table?commonly?used?to?calculate?and?display?MRP?information.
Figure?9.15:?Table?for?MRP

The?table?in?Figure?9.15?illustrates?time?periods?across?the?top.?These?represent?time?periods?for?planning?purposes,?or?time?buckets.?The?timebuckets?correspond?to?the?master?product?schedule,?which?is?usually?set?in?weeks.?The?purpose?of?using?these?time?periods?is?to?state?the?total?quantity?requirements?for?component?parts?and?materials?needed?during?each?time?bucket.?This?process?of?stating?requirements?by?time?bucket?is?often?called?time?phasing.
The?first?row?in?Figure?9.15?is?labeled?gross?requirements.?Gross?requirements?represent?the?total?quantity?needed?of?a?particular?item?in?each?time?bucket,?based?on?the?master?production?schedule?and?the?bill?of?materials,?regardless?of?current?inventory?of?that?item.?The?second?row,?scheduled?receipts,?shows?whether?any?orders?for?that?item?have?been?placed?previously,?but?not?yet?received.?Entries?in?this?row?indicate?when?the?order?should?arrive?and?how?many?units?should?be?enclosed.?Projected?ending?inventory?shows?the?planned?number?of?units?that?should?remain?at?the?end?of?each?time?bucket?after?all?transactions?of?that?period?are?complete.?If?the?number?of?units?available?during?a?period?(projected?ending?inventory?from?the?previous?period?plus?receipts)?is?not?sufficient?to?cover?gross?requirements,?then?the?row?labeled?netrequirements?indicates?the?number?of?units?the?company?is?short.?An?entry?in?net?requirements?indicates?that?a?replenishment?order?will?need?to?be?placed.?Thus,?the?last?two?rows?show?planned?receipts?and?planned?order?releases.?The?planned?receipts?row?shows?when?orders?must?arrive?in?order?to?avoid?a?shortage?of?necessary?parts?or?materials,?as?indicated?by?the?net?requirements?row.?The?planned?order?releases?row?indicates?the?time?periods?in?which?those?orders?must?be?released?(or?placed)?to?arrive?at?the?correct?time.?The?difference?between?scheduled?receipts?and?planned?receipts?is?that?scheduled?receipts?correspond?to?orders?that?have?actually?been?placed?sometime?in?the?past,?but?not?yet?received.?Planned?receipts?correspond?to?orders?planned?for?release,?but?not?yet?released.?Both?scheduled?receipts?and?planned?receipts?are?included?as?units?available?in?the?MRP?record.
MRP?Logic
The?information?in?Figure?9.15?may?be?completed?for?each?part?of?raw?material?as?follows:
? Obtain?the?bill?of?materials?for?the?appropriate?end?product.
? Begin?with?a?level?1?item?from?the?bill?of?materials.
? Multiply?the?number?of?units?of?the?level?1?item?needed?per?unit?of?finished?product?(from?the?bill?of?materials)?by?the?master?schedule?quantity?for?each?time?bucket.?Insert?this?as?gross?requirements?for?the?appropriate?time?bucket.?Ordinarily,?the?master?schedule?indicates?the?number?of?units?of?finished?product?to?be?produced?in?each?time?period,?so?the?appropriate?time?bucket?will?be?that?same?time?period.?In?some?cases,?however,?the?master?schedule?indicates?completion?of?production.?If?so,?the?time?period?when?production?begins?is?the?appropriate?time?bucket?for?gross?requirements.
? Enter?any?scheduled?receipts?of?the?item,?based?on?lead?time?and?orders?previously?released,?in?the?appropriate?time?buckets.
? Determine?how?many?units?should?be?in?inventory?at?the?start?of?the?first?time?bucket.?Enter?this?number?in?the?square?to?the?left?of?the?first?time?bucket.
? Perform?the?following?steps?for?each?time?bucket,?beginning?with?the?first,?until?the?end?of?the?planning?horizon?is?reached.?Add?projected?ending?inventory?from?the?preceding?time?bucket?to?scheduled?receipts?for?the?present?period.?If?this?total?equals?or?exceeds?gross?requirements?for?the?present?period,?go?to?step?a.?If?not,?go?to?step?b.
? If?gross?requirements?in?the?time?bucket?being?planned?are?less?than?or?equal?to?the?sum?of?projected?ending?inventory?from?the?preceding?time?bucket?and?scheduled?receipts?for?the?current?time?bucket,?enter?the?difference?as?projected?ending?inventory?in?the?current?period.?Leave?net?requirement?blank,?and?repeat?this?step?for?the?next?time?bucket.
? If?gross?requirements?are?greater?than?the?sum?of?projected?ending?inventory?from?the?preceding?time?bucket?and?scheduled?receipts?for?the?current?time?bucket,?enter?the?difference?as?net?requirements.?Leave?projected?ending?inventory?blank?for?the?present?time?period?until?the?following?sub-steps?have?been?performed.
? For?any?period?in?which?net?requirements?appear,?plan?an?order?release?and?corresponding?receipt?to?cover?the?net?requirement.?(This?ordering?approach?is?termed?lot-for-lot.?Net?requirements?from?several?periods?may?be?combined?into?one?planned?order?release?using?other?lot?sizing?methods.)
? Subtract?net?requirements?from?planned?receipts,?and?enter?the?total?as?projected?ending?inventory?for?the?current?time?bucket.?Proceed?to?step?a?for?the?next?time?bucket.
Problem
Consider?the?Maine?Woods?Company.?The?bill?of?materials?for?tricycles,?shown?in?Table?9.2,?indicates?the?front?assembly?(part?#463)?is?a?level?1?item.?The?inventory?file?for?this?item?shows?100?units?are?expected?to?be?in?inventory?at?the?end?of?December.?Production?lead?time,?the?time?it?takes?to?receive?front?assemblies?after?more?are?ordered?into?production,?is?two?weeks.?An?order?for?500?front?assemblies?was?released?earlier?and?is?scheduled?for?receipt?during?week?1?of?January.?Using?the?master?schedule?for?tricycles?of?Figure?9.12,?determine?planned?order?releases?for?front?assemblies.?The?production?for?weeks?5?and?6?is?set?at?250?units?each.
Step?1.?The?bill?of?materials?(Table?9.2)?indicates?one?front?assembly?is?needed?for?each?tricycle.
Step?2.?Front?assemblies?are?a?level?1?item,?so?begin?planning?with?them.
Step?3.?The?master?production?schedule?during?weeks?1?through?6?is?shown?at?the?top?of?Figure?9.16.?Because?one?front?assembly?is?needed?for?each?tricycle,?and?the?master?schedule?shows?units?to?be?produced?during?each?week,?the?gross?requirements?for?front?assemblies?in?each?week?will?be?the?same?as?the?master?schedule?quantities?of?tricycles.
Step?4.?The?scheduled?receipt?of?500?units?is?entered?for?week?1.
Step?5.?The?100?front?assemblies?projected?to?be?in?inventory?at?the?end?of?December?are?entered?in?the?projected?ending?inventory?box?to?the?left?of?week?1.
Step?6.?Week?1:?Gross?requirements?in?week?1?are?less?than?projected?ending?inventory?from?the?previous?week,?plus?scheduled?receipts?for?week?1.?The?difference?is?entered?as?projected?ending?inventory?for?week?1,?as?shown?in?Figure?9.16.
(100?+?500)?-?250?=?350
Week?2:?Gross?requirements?in?week?2?are?less?than?projected?ending?inventory?from?week?1.?Projected?ending?inventory?for?week?2?is:
350?-?285?=?65,
as?shown?in?Figure?9.17.
Figure?9.16:?MRP?for?front?assemblies

Figure?9.17:?Partially?completed?MRP:?Front?assemblies

Week?3:?Gross?requirements?in?week?3?are?greater?than?projected?ending?inventory?from?week?2?by?190?units.?This?difference?is?entered?as?net?requirements?for?week?3.
? An?order?for?week?3?net?requirements?must?be?planned?for?receipt?in?week?3.?Because?the?lead?time?is?two?weeks,?the?order?must?be?planned?for?release?in?week?1?(week?3?minus?2?weeks?lead?time?=?week?1).
? The?planned?receipts?for?week?3?are?190?units,?and?net?requirements?are?190?units.?Therefore,?the?projected?ending?inventory?for?week?3?will?be?zero.
Weeks?4?through?6?are?completed?in?the?same?way,?producing?the?results?shown?in?Figure?9.18.
Figure?9.18:?Completed?MRP:?Front?assemblies

In?this?example,?the?planned?order?releases?were?determined?for?front?assemblies,?which?are?a?level?1?item.?The?gross?requirements?for?all?level?1?items?will?be?determined?from?the?master?production?schedule.?But?items?that?are?level?2?in?the?bill?of?materials?will?be?used?in?making?level?1?items.?Thus,?their?gross?requirements?will?be?determined?from?planned?order?releases?for?level?1?items,?not?from?the?master?schedule.?For?example,?the?front?assemblies?that?were?just?planned?using?MRP?are?a?level?1?item.?However,?the?front?axle?supports?used?in?that?assembly?are?level?2.?Therefore,?the?gross?requirements?for?front?axle?supports?will?be?determined?by?the?planned?order?releases?for?front?assemblies,?as?shown?in?Figure?9.19.
Figure?9.19:?MRP?for?a?level?2?item:?Front?axle?supports

Coordinating?Purchasing
Many?times,?one?particular?part?or?subassembly?will?be?used?in?more?than?one?product.?In?such?cases,?the?gross?requirements?for?that?part?must?take?into?account?all?planned?production?of?products?or?subassemblies?that?use?that?part.
Problem
The?front?wheel?in?the?Maine?Woods?tricycle?is?exactly?the?same?as?the?two?rear?wheels.?However,?the?front?wheel?is?part?of?a?subassembly,?while?the?rear?wheels?are?not.?Furthermore,?the?wheels?on?Maine?Woods’?scooter?are?also?the?same?as?the?wheels?used?on?its?tricycle.?Therefore,?gross?requirements?for?wheels?(part?#5917)?will?be?the?sum?of?planned?order?releases?for?tricycle?front?assemblies?(Figure?9.18)?plus?the?master?schedule?quantities?for?tricycles?(Figure?9.12),?multiplied?by?two,?and?scooters?(Figure?9.12),?also?multiplied?by?two,?as?shown?in?Figure?9.20.
Figure?9.20:?Combining?demand?from?multiple?sources?and?levels

MRP?Coordinates?Purchasing?and?Operations
The?output?from?MRP?is?a?schedule?of?planned?order?releases.?There?are?two?types?of?orders.?A?shop?order?authorizes?production?to?make?certain?component?parts?or?subassemblies.?A?purchase?order?is?an?authorization?for?a?vendor?to?supply?parts?or?materials.?If?the?orders?request?component?parts?or?subassemblies?made?by?the?company?itself,?then?a?shop?order?will?be?released.?If?the?planned?order?release?is?for?a?part?or?raw?material?that?is?purchased?from?an?outside?vendor,?then?a?purchase?order?will?be?released.
The?operations?part?of?a?company?is?usually?the?department?responsible?for?running?MRP.?Thus,?operations?are?aware?that?the?release?of?a?shop?order?means?that?a?certain?part?or?component?should?be?started?in?production?because?a?need?will?exist?for?it?sometime?in?the?near?future.?Because?operations?generated?the?shop?order?release,?they?will?be?aware?that?it?is?a?valid?order?and?that?it?should?be?produced?in?the?quantity?indicated.?Purchase?orders?are?usually?handled?by?a?purchasing?or?procurement?department.?If?the?order?releases?generated?by?MRP?are?to?be?carried?out,?then?the?purchasing?department?must?be?aware?of?what?the?MRP?system?is?doing?and?trust?in?the?output?it?generates.?Close?coordination?between?the?operations?and?purchasing?departments?is?essential.

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