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7.18 - Materials Requirements Planning [MRPII)

Material requirements planning (MRP) is a computerised information system that integrates the scheduling and the control of materials for manufacturing. The MRP system shows what materials procurement actions are needed and when, so that the desired quantities of end products are completed during the planning horizon.

The MRP environment is usually an assembly, fabrication or combination assembly-fabrication manufacturing situation where the various end products are produced from many sub-components, assemblies and materials, for which the sequence of product build-up is known. Thus the management problem involves both material control and planning: the many component parts must be delivered on time in the right quantities at all stages of product build-up. MRP is the means for co-ordinating all these efforts. In other words – MRP IS A SCHEDULING SYSTEM!

MRP system components

The figure below shows the basic components of an MRP system: a master production schedule, an inventory status file, and bill of materials. Using these three sources, the MRP processing logic (a computer program) provides three kinds of information outputs about each product component: order release requirements, order re-scheduling, and planned orders. Let’s examine each of these elements in more detail.

MRP II - Overall viewpoint

Master Production Schedule (MPS)

The MPS is initially developed from firm customer orders or from forecasts of demand before the MRP system begins to operate; it becomes an input to the system. Designed to meet the market demand, the MPS identifies the quantity of each end product (end item) and when it needs to be produced during each future period in the production planning horizon. The MPS provides the focal information for the MRP system: it ultimately governs the MRP system’s recommended actions on the timing of materials procurement and sub-components build-ups, which are geared to meeting the MPS output schedule.

Bill of Materials (BOM)

The BOM identifies how each end product is manufactured, specifying all sub-components items, their sequence of build-up, their quantity in each finished unit, and work which work centres perform the build-up sequence in the facility. This information is obtained from product design documents, work flow analysis, and other standard manufacturing and industrial engineering documentation.

The primary information to MRP from the BOM is the Product Structure, an example of which is shown in the next figure. One unit of end product A requires one unit of sub-components B and C. The product structure for end product D requires one E and one F. Sub-component E is created from one B and two units of item C.

Two Assembled Products

In MRP terminology, A and D are “upper-level” end items, while the sub-components are “lower-level” items. By precisely identifying the levels in the product structure, we clearly show the relationship among the component items in all our end products. Each item in the product structure is given a unique identification number. Since product design changes occur periodically, we must be able to change the BOM file to accurately reflect the current product structure. This is a must in MRP systems and BOM information must be greater than 98% accurate for MRP to work properly. Subsequently, by knowing the master schedule for end-items, MRP can schedule and time-phase the orders for lower-level components items in the product structure.

Inventory Status File

The system must retain an up-to-date file of the inventory status of each item in the product structure. This file provides accurate information about the availability of every item controlled by MRP. The system uses this information to maintain an accurate accounting of all inventory transactions, both actual and planned. The inventory status file contains the identification (or part) number, quantity on-hand, safety stock level, quantity disbursed (allocated), and procurement lead time of every item. The time needed procure an item, once an order for it is initiated, is taken into account when deciding to place an order for that item.

The MRP Processing Logic

The MRP processing logic accepts the master schedule for end items and determines the components schedules for successively lower-level items through-out the product structures. It calculates for each of the time periods (typically one week periods) in the scheduling horizon how many of that item are needed (gross requirements) how many units from existing inventory are already available, the net quantity we must plan on receiving in new shipments (planned order receipts), and when orders for the new shipments must be placed (planned order releases) so that all materials arrive just when needed. This data processing continues until it has determined the requirements for all items that will be used to meet the master production schedule. Then, the updated plans are available to managers throughout the manufacturing and procurements system.

In other words;

What do we want to make?


What does it take to make it?


What have we already got?


What do we need to get?


Management Information from MRP

The MRP output gives a report, similar to the example below for each item in the product structure.

Part Number, Description

3201 Bracket; Engine Mounting

Lead Time




Report date week =


Week Number









Gross Requirements



Scheduled Receipts Available for next Period




Net Requirements



Planned Order Receipts



Planned Order Releases



The example report shows that 400 units of this item are needed (gross requirements) in week 4 and another 500 are needed in week 8. No outstanding orders were previously placed so there are no units of this item scheduled for receipt as of this time. There are, however, 50 uncommitted units against meeting the week 4 requirements. Consequently, there are requirements of 350 units for week 4 and 500 units for week 8. To meet these requirements, the report indicates we should plan on receiving 350 units in week 4 and a 500-unit order in week 8. Since this particular item has a 3 week procurement lead time, the first order must be placed (released) in week 1 and the second in week 5.

This report clearly indicates what procurement actions are required to keep production on schedule, it also gives suppliers advanced notification of the demands that will be placed on them in the future. As end item demands change with the passage of time modifications in the master schedule will dictate corresponding adjustments of lower level requirements. Weekly updating, for example, will revise the previous schedules and may indicate that an order must be received earlier (expedited) or that a previously placed order can wait until later (de-expedited) or even cancelled. As you can imagine, this information system is especially valuable when there are many end items with hundreds or thousands of related sub-components that must be co-ordinated among numerous suppliers and departments.

Manufacturing Resource Planning (MRPII)

Manufacturing resource planning (or “closed loop” MRP) is an integrated information system that steps beyond first generation MRP to synchronise all aspects (not just manufacturing) of the business. The MRPII system co-ordinates sales, purchasing, manufacturing, finance, and engineering by adopting a focal production plan and by using one unified database to plan and update the activities in all the systems.

Closed Loop MRP II

As shown in the figure above, the process involves developing from the overall business plan, a production plan that specifies, generally, monthly levels of production for each product line over the next one to five years. Since this production plan affects all the functional departments, it is developed by the consensus of the functional managers for whom it subsequently becomes the “game plan” for company operations. Production is then expected to produce at these levels, the sales department is expected to sell at these levels, and finance will ensure adequate financial resources.

Guided by the production plan, the master production schedule specifies the weekly quantities of specific products to be built. At this point a check is made to determine whether or not the capacity available is roughly adequate to sustain the master schedule. If not, either the capacity or the master schedule must be changed. Once settled the master schedule is used in the MRP logic as previously described, to create materials requirements priority schedules for production.

Then, a detailed capacity requirements evaluation determines whether or not the necessary capacity exists for producing the specific components at each work centre during the scheduled time periods. If not, the master schedule is revised to reflect the realities of the limited available capacity. After a realistic, capacity-feasible schedule is developed, the emphasis shifts to EXECUTION of the plan; purchase schedules and shop schedules are generated. From these schedules, work centre loadings, shop floor control, vendor follow-up activities can be determined to ensure that the master schedule is implemented.

The feedback from MRPII is valuable in two respects. First, it keeps all relevant departments informed about operations progress, enabling them to adjust harmoniously to deviations from the plan. Thus, a delinquent vendor delivery, a machine breakdown, or a customer’s request for a quicker delivery of an order can be fed back into the requirements planning system so that all the schedules for related sub-components can be modified.

A second use of the MRPII system is to evaluate various business proposals. The computer program can be used to simulate various business effects of “what if?” questions about business operations.

If, for example, the output of product X were to increase by 20% in weeks 15 to 20 and that of Y decreases by 15% in weeks 10 to 15, how are operations and profitability affected? The system will show how purchases and, hence, accounts payable are affected, when deliveries to customers and accounts receivable will occur, what capacity revisions are needed, and so on. The company wide implications of the proposed changes can be evaluated and the actions of the various departments can be co-ordinated toward a common purpose.

Further Reading