Its formula is as follow:
- Net requirements = Gross requirements – Inventory available – Expected receipts
- Inventory available = Inventory on hand – Inventory allocated – Safety stock
- Order time = Need time – Lead-time
The material requirements planning (MRP) is aimed at exploding from the master production schedule (MPS) all the downstream manufacturing requirements for all the components and raw materials, schedule the production due dates and the start date of all jobs.
The MRP time horizon is the same of MPS but the time bucket here is usually the day.
Typically, it gives proposals to the supply chain organisation on which items to produce or purchase, when and how much.
The material requirements planning (MRP) takes into account:
- Master Production Schedule due dates
- The Bill Of Materials (BOM): list of all components, sub-assemblies, raw materials with its relative quantity
- The manufacturing leadtime for components or sub-assemblies, and purchase leadtime for raw materials
- Stock level for each item of the BOM.
There are two kinds of requirements:
- Gross requirements: It represents the total requirements (dependent and independent demand) for a given item without taking into account the stock level neither scheduled receipts. Those are calculated with the component BOM factor multiplied by the upstream required manufacturing quantity
- Net requirements: This is the quantity obtained by deducting the stock level and the schedule receipts for a given item and adjusting with the required safety stock level. Those outputs requirements are then becoming planned production work orders or purchase orders according to the lot size.
The material requirements planning (MRP) result is to propose production orders (work and purchase orders) and alert with action messages (move out, cancel, push,…)
The proposed work orders are transformed according to the planned horizon:
- Planned work order: This is the MRP output, which is proposing planned manufacturing work orders over its horizon.
- Firm work order: The proposed quantity and the production schedule date are then approved by the planner, and cannot be modified anymore by the MRP calculation. Only the planner is able to manually modify it.
- Released work order: The order has been launched on the manufacturing line, and a scheduled receipt is then expected according to the MRP.
- Received work order: The work order is fully or partially completed
- Closed work order: The work order has been fully received and useable for accounting purpose. It is no longer active for the next MRP runs
Let’s build the MRP according to the BOM above:
It is important here to follow the manufacturing requirements through the BOM levels with the backward scheduling.
We note here that there is no safety leadtime between upstream start date and downstream due date, as we plan item to be produced on time.
Please check our templates in the download area to order to get spreadsheets with full details.