Operations and Supply Chain Management The Core

MATERIAL REQUIREMENTS PLANNING chapter 9 267
WHEELS ARE DEPENDENT
DEMAND ITEMS BASED
ON THE ASSEMBLY-LINE
PRODUCTION RATE.
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Our emphasis here is on material requirements planning (MRP), which is the key
piece of logic that ties the production functions together from a material planning and control
view. MRP has been installed almost universally in manufacturing firms, even those
considered small companies. The reason is that MRP is a logical, easily understandable
approach to the problem of determining the number of parts, components, and materials
needed to produce each end item. MRP also provides the schedule specifying when each of
these items should be ordered or produced.
MRP is based on dependent demand. Dependent demand is caused by the demand for
a higher-level item. Tires, wheels, and engines are dependent demand items based on the
demand for automobiles, for example.
Determining the number of dependent demand items needed is essentially a straightforward
multiplication process. If one part A takes five parts of B to make it, then five parts of
A require 25 parts of B. The basic difference in independent demand covered in Chapter 11
and dependent demand covered in this chapter is as follows: If part A is sold outside the firm,
the amount of part A that we sell is uncertain. We need to create a forecast using past data
or do something like a market analysis. Part A is an independent item. However, part B is a
dependent part and its use depends on part A. The number of B needed is simply the number
of A times five. As a result of this type of multiplication, the requirements of other dependent
demand items tend to become more and more lumpy as we go further down into the product
creation sequence. Lumpiness means that the requirements tend to bunch or lump rather than
having an even dispersal. This is also caused by the way manufacturing is done. When manufacturing
occurs in lots (or batches), items needed to produce the lot are withdrawn from
inventory in quantities (perhaps all at once) rather than one at a time.
Material
requirements
planning (MRP)
The logic for
determining the
number of parts,
components, and
materials needed to
produce a product.
Where MRP Can Be Used
MRP is most valuable in industries where a number of products are made in batches using
the same productive equipment. The list in Exhibit 9.2 includes examples of different
industry types and the expected benefit from MRP. As you can see in the exhibit, MRP is
most valuable to companies involved in assembly operations and least valuable to those in
fabrication. One more point to note: MRP does not work well in companies that produce
a low number of units annually. Especially for companies producing complex, expensive
products requiring advanced research and design, experience has shown that lead times