Question

For the following eight questions, indicate which pieces of information would be inputs needed to conduct Material Requirements Planning, and which would be the outputs of the MRP process:

1. Demand forecast and/or customer orders for the finished product

2. Bill of Materials for the finished product

3. Planned lead times for all items on the Bill of Materials

4. Scheduled Receipts for all items on the Bill of Materials

5. Lot sizing rules for all items on the Bill of Materials

6. Current inventory for all items on the Bill of Materials

7. Planned purchase order releases for all purchased items on the Bill of Materials

8. Planned production order releases for all manufactured items on the Bill of Materials

Answer 1

Material requirement planning is the process of planning, scheduling and controlling manufacturing and inventory management. This means it is the plan that mentions the schedule of production of the end items and the components, it dictates the level of inventory that needs to be maintained in order to meet the demand, and it shows the points at which the order has to be placed for the components.

Understanding its purpose is key categorizing what are the inputs and outputs.

Demand forecast: this is an input for MRP. It is necessary to know the demand in order to plan the production and requirement of materials.

Bill of materials (BOM): this is an input for MRP. Bill of materials shows the number of different components required to build the final item and the lead time for each of the components and sub components.

Planned lead times for all items on BOM: this is an input. The planned lead time allows us to order the components so that they will be present when we need it.

Scheduled receipts of items on BOM: this is an input. Scheduled receipts are not to be confused with planned order receipts. Scheduled receipts allow MRP creators to plan their net requirement for that period. Scheduled receipts are the schedule of items that arrive periodically without placing explicit orders.

Lot sizing rules for all items on BOM: this is an output of MRP. Lot sizing rule depends on cost of the item, demand of an item, lead time and safety stock needed. MRP helps in identifying the demand and helps in figuring out the appropriate lot sizing technique.

Current inventory for all items on BOM: this is an output of MRP. By looking at MRP at any point, we can identify the current inventory level for all items/components that is there.

Planned purchase order releases: this is an output of MRP. Depending on the demand of items/components needs, we need to place the order with the difference of lead time in mind. This is possible only on establishing MRP.

Planned production order releases: this is an output of MRP. Works same way as purchase order. However this is for manufacturing of the items/components.