Material Requirement Planning (MRP) is a computer-based inventory management technique used for determining the quantity and timing for the acquisition of dependent demand items needed to satisfy master schedule requirements.
The Terminology used in MRP is:
Dependent Demand: Demand for components that are derived from the demand for other items.
Parent and component items: A parent is an assembly made up of basic parts or components. The parent of one subgroup may be a component of a higher-level parent.
Lot Size: The number of items required for an order. The order may be either purchased from a vendor or produced in house. Lot sizing is the process of specifying the order size.
Time Phasing: Scheduling to produce or receive an appropriate amount (log) of material so it will be available in the time periods.
Time Bucket: Time bucket is the time period used for planning purposes in Material Requirement Planning (MRP) usually 7 days (week).
Requirements: Projected needs for raw materials, components, sub-assemblies or finished goods. Gross requirements are total needs from all sources, whereas net requirements are ‘net’ after allowing for available inventory.
Requirement explosion: The breaking down (exploding) of parent items into components parts that can be individually planned and scheduled.
Bill of Materials: A list of all components (sub-assemblies and materials) that go into assembled items. It frequently includes the part numbers and quantity required per assembly.
Scheduled Receipt: Materials already ordered from vendor or in-house shop. The MRP shows both the quantity and project time of receipt.
Lead-time Offset: The supply time or a number of time buckets between releasing an order and receiving the materials.
Planned Order Release: The plan to initiate the manufacture of materials or purchase of materials so that they will be received on schedule after the lead-time offset.
Different Lot Sizing Techniques in MRP are:
- Lot for Lot (LFL): Order the exact amount of the net requirement for each period.
- Single Lot: Order quantity is equal to the total requirement and only one order is to be placed.
- Economic Order Quantity (EOQ): Order an EOQ or ERL amount.
- Least Unit Cost (LUC): Order the net requirement for the current period or current plus next or current plus next two and so on, depending upon which gives the lowest unit cost.
- Minimum Cost Period (MCP): Order quantity is selected in such a way the cost period must be minimum.
- Part-Period Algorithm (PPA): Use the ratio of ordering and carrying costs to derive a part-period number and use the number as a criterion for cumulating requirements.
- Period Order Quantity (POQ): Divide the Economic Order Quantity (EOQ) into the annual demand and order that many times per year.
