Objective
Furthering his understanding with Billie's guidance, Trent now steps into the next phase of the Plan-to-Produce Process, focusing on Material Requirements Planning.
Billie isn't just any expert—she's the one responsible for ensuring the Bike Company has all essential materials, like raw materials and assemblies, available at the right time and in the right quantity. Her role is crucial in meeting customer demands. She is about to share these hands-on experiences with Trent.
Are you wondering how Material Requirements Planning works?
Let’s get some deeper insights into the process.
BOM Explosion and Scheduling
The first step in MRP is called BOM Explosion and Scheduling.
A finished product normally consists of several assemblies, sub-assemblies down to the level of raw materials. All the components needed to produce a finished product are defined in a Bill of Materials, or in short: BOM.
During the BOM explosion, the system generates a list of all components and component quantities required to make a finished good.
Therefore, the system analyzes the structure of a finished product. In the BOM of a finished product, you can maintain both raw materials and assemblies. The latter have their own BOM. The process goes on, until an assembly only has raw materials in its individual BOM.
Using the BOM as a starting point, the system then decides when the individual components should be available.
Raw materials, for example, might be needed earlier because they will be used to manufacture an assembly. Assemblies will be used later when the final product is assembled.
Starting from the requirement date of a finished product, which resulted from a sales order or independent requirement, the system takes the list of relevant components and calculates the date they will be needed. This process is called backward scheduling.
The goal of backward scheduling is to calculate the right start and end dates for each production or procurement activity. So that the finished product is available at the requested date and the assemblies and raw materials are in stock for as short as possible.
Net Requirements Calculation
The second step of Materials Requirement Planning is called Net Requirements Calculation.
After BOM explosion and scheduling, the MRP executes a net requirements calculation to decide whether there are shortages of assemblies and/or raw materials.
For each material, the system compares the sum of all receipts with the sum of all requirements. In the case of a shortage, the system calculates the quantity of the assembly or raw material that is necessary to resolve this shortage.
Let me illustrate this step for you based on two scenarios.
Creation of Replenishment Elements
The third step of Materials Requirement Planning is the creation of Replenishment Elements.
After having determined the quantities we must replenish, the next step is to create replenishment elements.
Usually, missing raw materials are procured from external suppliers and missing assemblies are manufactured in-house.
To trigger procurement, the MRP run creates purchase requisitions which are processed by the Materials Management Department.
To trigger in-house manufacturing, the MRP run creates planned orders which are converted into production orders that will be processed by the Production Department.
So, for the first scenario the MRP run generates a purchase requisition of 100 chains that the sales department must procure from one or more suppliers. In the second scenario, the MRP run generates planned orders to trigger frame replenishment.
In summary, MRP calculates when which material is needed and, in case of shortage, creates respective replenishment elements.
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