14

C H A P T E R

Material Requirements Planning (MRP) and ERP

14.1 An exploded bill yields the following:

Item J: 200 units; Item K: 200  1 = 200 units; Item L: 200  4 = 800 units; Item M: 200  2 = 400 units.

14.2 The time-phased assembly plan for the gift bags is:

Someone should start on item M by noon.

14.3 (a) Level

0

(b) For 50 brackets, the gross requirements are for 50 bases, 100 springs, 250 clamps, 250 handles, 250 castings, 100 housings, 200
bearings, and 100 shafts.
(c) For 50 brackets, the net requirements are: 25 bases, 100 springs, 125 clamps, 125 handles, 125 castings, 50 housings, 100
bearings, and 50 shafts.

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2 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

14.4 (a) Time-phased product structure for bracket with start times:

Week Activity Is Scheduled to Start

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 3

14.12# (a) Net material requirements plan:

Week
Item 1 2 3 4 5 6 7 8 9 10 11 12

A Gross requirement 100 50 150

On hand: — 0 0 0 0
Net requirement 100 50 150
Order receipt 100 50 150
Order release 100 50 150
H Gross requirement 100 50
On hand: — 0 0 0
Net requirement 100 50
Order receipt 100 50
Order release 100 50
B Gross requirement 100 50 150
On hand: 100 100 0 0
Net requirement 50 150
Order receipt 50 150
Order release 50 150
C Gross requirement 100 100 50 50 150
On hand: 50 50 0 0 0 0
Net requirement 50 100 50 50 150
Order receipt 50 100 50 50 150
Order release 50 100 50 50 150
J Gross requirement 100 50
On hand: 100 100 0
Net requirement 0 50
Order receipt 0 50
Order release 50
K Gross requirement 100 50
On hand: 100 100 0
Net requirement 0 50
Order receipt 0 50
Order release 50
D Gross requirement 50 150
On hand: 50 50 0
Net requirement 150
Order receipt 150
Order release 150
E Gross requirement 50 100 150
On hand: 75 75 25 0
Net requirement 75 150
Order receipt 75 150
Order release 75 150
F Gross requirement 50 100 50 100 150
On hand: 75 75 25 0 0 0
Net requirement 75 50 100 150
Order receipt 75 50 100 150
Order release 75 50 100 150
G Gross requirement 50 100 50 100 150
On hand: 75 75 25 0 0 0
Net requirement 75 50 100 150
Order receipt 75 50 100 150
Order release 75 50 100 150

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4 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

(b)

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 5

14.13# (a)

(b)

(c) Level: 0 Parent: — Quantity:

Item: 20 fan Lead Time: 1 Lot Size:
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,000
Scheduled receipt
On hand 100 100
Net requirement 900
Planned order receipt 900
Planned order release 900

Level: 1 Parent: 20 fan Quantity: 1X

Item: housing Lead Time: 1 week Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand 100 100
Net requirement 800
Planned order receipt 800
Planned order release 800

Level: 1 Parent: 20 fan Quantity: 2X

Item: grills Lead Time: 2 weeks Lot Size: 500
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,800
Scheduled receipt
On hand 200 200 400
Net requirement 1,600
Planned order receipt 2,000
Planned order release 2,000

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6 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

Level: 1 Parent: 20 fan Quantity: 1X

Item: fan assembly Lead Time: 3 weeks Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand 150 150
Net requirement 750
Planned order receipt 750
Planned order release 750

Level: 1 Parent: 20 fan Quantity: 1X

Item: electrical unit Lead Time: 1 week Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand
Net requirement 900
Planned order receipt 900
Planned order release 900

Level: 2 Parent: housing Quantity: 1X

Item: frame Lead Time: 2 weeks Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 800
Scheduled receipt
On hand
Net requirement 800
Planned order receipt 800
Planned order release 800

Level: 2 Parent: housing Quantity: 2X

Item: supports Lead Time: 1 week Lot Size: 100
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,600
Scheduled receipt
On hand 50
Net requirement 1,550
Planned order receipt 1,600
Planned order release 1,600

Level: 2 Parent: housing Quantity: 1X

Item: handle Lead Time: 1 week Lot Size: 500
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 800
Scheduled receipt
On hand 400 100
Net requirement 400
Planned order receipt 500
Planned order release 500

Level: 2 Parent: fan assembly Quantity: 1X

Item: hub Lead Time: 1 week Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 750
Scheduled receipt
On hand
Net requirement 750
Planned order receipt 750
Planned order release 750

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 7

Level: 2 Parent: fan assembly Quantity: 5X

Item: blades Lead Time: 2 weeks Lot Size: 100
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 3,750
Scheduled receipt
On hand 50
Net requirement 3,750
Planned order receipt 3,800
Planned order release 3,800

Level: 2 Parent: electrical unit Quantity: 1X

Item: motor Lead Time: 1 week Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand
Net requirement 900
Planned order receipt 900
Planned order release 900

Level: 2 Parent: electrical unit Quantity: 1X

Item: switch Lead Time: 1 week Lot Size: 12
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand 20 20 8
Net requirement 880
Planned order receipt 888
Planned order release 888

Level: 2 Parent: electrical unit Quantity: 1X

Item: knob Lead Time: 1 week Lot Size: 25
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt 200
On hand 200 200 200
Net requirement
Planned order receipt 700
Planned order release 700

14.14# (a) Level Component Quantity

0 A 1
1 B 1
2 C 1
2 D 1
3 E 1
1 F 1
2 G 1
2 H 1
3 E 1
3 C 1
Note: With low-level coding, C would be a Level 3 code.

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8 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

(b) Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 0 — — 0 A Gross requirement 10
for Scheduled receipt
Lot Projected on hand 0
Net requirement 10
Planned receipt 10
Planned release 10

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 2 — — 1 B Gross requirement 10A
for Scheduled receipt
Lot Projected on hand 2 2 2 2 2 2 2 0
Net requirement 8
Planned receipt 8
Planned release 8

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 5 — — 1 F Gross requirement 10A
for Scheduled receipt
Lot Projected on hand 5 5 5 5 5 5 5 0
Net requirement 5
Planned receipt 5
Planned release 5

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 5 — — 2 D Gross requirement 8B
for Scheduled receipt
Lot Projected on hand 5 5 5 5 5 5 0 0
Net requirement 3
Planned receipt 3
Planned release 3

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 3 1 — — 2 G Gross requirement 5F
for Scheduled receipt
Lot Projected on hand 1 1 1 1 1 1 0 0
Net requirement 4
Planned receipt 4
Planned release 4

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 10 — — 2 H Gross requirement 5F
for Scheduled receipt
Lot Projected on hand 10 10 10 10 10 10 5 5
Net requirement 0
Planned receipt 0
Planned release 0

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 9

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 2 10 — — 3 C Gross requirement 0H 8B
for Scheduled receipt
Lot Projected on hand 10 10 10 10 10 10 2 2
Net requirement 0 0
Planned receipt 0 0
Planned release 0 0

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 4 — — 3 E Gross requirement 3H,D
for Scheduled receipt
Lot Projected on hand 4 4 4 4 4 1 1 1
Net requirement 0
Planned receipt 0
Planned release 0

Ten units are required for production and 10 each of B and F for field service repair:
14.15# (a)
Component Quantity
A 10
B 20
C 40
D 20
E 40
F 20
G 20
H 20

(b) Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 0 — — 0 A Gross requirement 10
for Scheduled receipt
Lot Projected on hand 0 0 0 0 0 0 0 10
Net requirement 10
Planned receipt 10
Planned release 10

Low-
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 2 — — 1 B Gross requirement 10M 10A
for Scheduled receipt
Lot Projected on hand 2 2 2 2 2 2 0 0
Net requirement 8 10
Planned receipt 8 10
Planned release 8 10

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10 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 5 — — 1 F Gross requirement 10M 10A
for Scheduled receipt
Lot Projected on hand 5 5 5 5 5 5 0 0
Net requirement 5 10
Planned receipt 5 10
Planned release 5 10

Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
B B
Lot 1 5 — — 2 D Gross requirement 8 10
for Scheduled receipt
Lot Projected on hand 5 5 5 5 5 0 0 0
Net requirement 3 10
Planned receipt 3 10
Planned release 3 10

Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
F F
Lot 3 1 — — 2 G Gross requirement 5 10
for Scheduled receipt
Lot Projected on hand 1 1 1 1 1 0 0 0
Net requirement 4 10
Planned receipt 4 10
Planned release 4 10
Note: M (in items B and F) means a repair or maintenance item.
Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 10 — — 2 H Gross requirement 5F 10F
for Scheduled receipt
Lot Projected on hand 10 10 10 10 10 5 0 0
Net requirement 5
Planned receipt 5
Planned release 5

Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 2 10 — — 3 C Gross requirement 13H,B 10B
for Scheduled receipt
Lot Projected on hand 10 10 10 10 10 0 0 0
Net requirement 3 10
Planned receipt 3 10
Planned release 3 10

Low–
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocated Code ID 1 2 3 4 5 6 7 8
Lot 1 4 — — 3 E Gross requirement 3D 15H,D
for Scheduled receipt
Lot Projected on hand 4 4 4 4 1 0 0 0
Net requirement 14
Planned receipt 14
Planned release 14

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 11

14.22 Lot-for-lot ordering policy:

Week
1 2 3 4 5 6 7 8 9 10 11 12
Gr req 30 40 30 70 20 10 80 50
Beg inv 40 10 10 0 0 0 0 0 0 0 0 0
End inv 10 10 0 0 0 0 0 0 0 0 0 0
Ord rcpt 30 30 70 20 10 80 50
Ord rel 30 30 70 20 10 80 50
Total Cost = Order cost + Holding cost = 7 orders  $150/order + 20 units  $2.50/unit/period = $1,100

14.23# Economic Order Quantity:

2 DS 2  330  150
Q= = = 57.4, or 57 units
H 2.50  12
where D = period demand, S = setup or order cost, H = holding cost.

330
Reorder point = Demand during lead time = units week  1 week
12
= 27.5, or 28 units
Lot size = EOQ Setup cost = $150 Holding cost = $2.50 Lead time = 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 30 40 30 70 20 10 80 50
Scheduled receipt
On hand (beginning) 40 40 10 10 27 27 54 41 21 21 11 45 45
On hand (end of period) 10 10 27 27 54 41 21 21 11 45 45 52
Net requirements 30 3 16 69 5
Planned order receipt 57 57 57 114 57
Planned order release 57 57 57 114 57

EOQ = 57; Demand for 12-Week Period = 330

Setups = 5  150 = $750
Holding cost = (allowing for 12 time periods)
= 2.50  364 = $910
Actual total cost = Setup + Holding = 750 + 910 = $1,660

14.24#
Lot size = POQ Setup cost = $150 Holding cost = $2.50 Lead time = 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 30 40 30 70 20 10 80 50
Scheduled receipt
On hand (beginning) 40 40 10 0 0 0 70 0 0 0 80 0 0
On hand (end of period) 10 10 0 0 70 0 0 0 80 0 0 0
Net requirements 30 30 20 50
Planned order receipt 30 100 20 90 50
Planned order release 30 100 20 90 50

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12 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

Setup cost = 5  150 = $750

Holding cost = (allowing for 12 time periods) = 2.50  170 = $425
Total cost = Setup + Holding = 750 + 425 = $1,175
Note: We are counting (and costing) inventory at the end the period (i.e., there are 10 units in inventory at the end of period 1 and
80 at the end of period 9).

14.25# Lot-for-lot can be considered best as it has the lowest cost at $1,100. EOQ = $1,660; POQ = $1,175.

14.26 (a)
Lot size = Lot-for-lot Setup cost = $200 Holding cost = $10 Lead time = 1 week
1 2 3 4 5 6 7 8 9
Gross requirements 15 20 10 25
Scheduled receipts
On hand (beginning of period) 0 0 0 0 0 0 0 0 0
On hand (end of period) 0 0 0 0 0 0 0 0 0
Net requirements 15 20 10 25
Planned order receipt 15 20 10 25
Planned order release 15 20 10 25

Setups = 4  200 = $800

Holding cost = $10  0 = $0
Total cost = Setup + Holding = 800 + 0 = $800

(b)
Lot size = EOQ Setup cost = $200 Holding cost = $10 Lead time = 1 week
1 2 3 4 5 6 7 8 9
Gross requirements 15 20 10 25
Scheduled receipts
On hand (beginning of period) 0 0 3 3 0 0 9 9 9
On hand (end of period) 0 3 3 1 1 9 9 9 2
Net requirements 15 20 9 16
Planned order receipt 18 18 18 18
Planned order release 18 18 18 18

EOQ = 18
Setups = 4  $200 = $800
Holding cost = $10  37 = $370
Total cost = Setup + Holding = 800 + 370 = $1,170

(c)
Lot size = POQ Setup cost = $200 Holding cost = $10 Lead time = 1 week
1 2 3 4 5 6 7 8 9
Gross requirements 15 20 10 25
Scheduled receipts
On hand (beginning of period) 0 0 0 0 0 0 0 0 0
On hand (end of period) 0 0 0 0 0 0 0 0 0
Net requirements 15 20 10 25
Planned order receipt 15 20 10 25
Planned order release 15 20 10 25

EOQ = 18 POQ = 2
Setups = 4  $200 = $800
Holding cost = $10  0 = $0
Total cost = Setup + Holding = 800 + 0 = $800
(d) Both lot-for-lot and POQ have the same ordering policy and thus the same cost for the 9-week period, $800.

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 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP 13

14.27#
(a)
Lot size = Lot-for-lot Setup cost = $200 Holding cost = $10 Lead time = 1 week

1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 35 40 10 25 10 45
Scheduled receipts
On hand (beginning of period) 0 0 0 0 0 0 0 0 0 0 0
On hand (end of period) 0 0 0 0 0 0 0 0 0 0 0
Net requirements 35 40 10 25 10 45
Planned order receipt 35 40 10 25 10 45
Planned order release 35 40 10 25 10 45
Setups = 6  200 = $1,200
Holding cost = $10  0 = $0
Total cost = Setup + Holding = 1,200 + 0 = $1,200
(b)
Lot size = EOQ Setup cost = $200 Holding cost = $10 Lead time = 1 week

1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 35 40 10 25 10 45
Scheduled receipts
On hand (beginning of period) 0 0 11 11 17 17 7 7 7 5 18 18
On hand (end of period) 0 11 11 17 17 7 7 7 5 18 18 19
Net requirements 35 29 0 18 5 27
Planned order receipt 46 46 0 23 23 46
Planned order release 46 46 23 23 46
EOQ = 23
Setups = 5  $200 = $1,000
Holding cost = $10  137 = $1,370
Total cost = Setup + Holding = $1,000 + $1,370 = $2,370
Note: We are counting (and costing) inventory at the end the period (i.e., there are 0 units in inventory at the end of
period 1 but 19 at the end of period 12).

(c)
Lot size = POQ Setup cost = $200 Holding cost = $10 Lead time = 1 week

1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 35 40 10 25 10 45
Scheduled receipts
On hand (beginning of period) 0 0 0 0 0 0 0 0 0 10 0 0
On hand (end of period) 0 0 0 0 0 0 0 0 10 0 0 0
Net requirements 35 40 10 25 45
Planned order receipt 35 40 10 35 45
Planned order release 35 40 10 35 45
EOQ = 23 POQ = 2 periods
Setups = 5  $200 = $1,000
Holding cost = $10  10 = $100
Total cost = Setup + Holding = $1,000 + $100 = $1,100
(d) Periodic order quantity yields the lowest cost, $1,100, for this unique 12-week period.

14.28 (a) Economic order quantity:

Economic Order Quantity =
2 DS 2  275  50
Q= = = 104.9, or 105 units
H 0.25  10
where D = period demand, S = setup or order cost, H = holding cost.

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14 CHAPTER 14 MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP

Reorder point:
Reorder point = demand during lead time
275
= units period  1 period
10
= 27.5, or 28 units

Week
Now 1 2 3 4 5 6 7 8 9 10
Gr req 35 30 45 0 10 40 30 0 30 55
Beg inv 0 0 70 40 –5 100 90 50 20 125 95
End inv 0* 70 40 –5* 100 90 50 20* 125 95 40
Ord rcpt 105 105 105
Ord rel 105 105 105
Note: This analysis includes holding cost for the 40 units held from period 10 for period 11.
Orders are placed in the weeks with ending inventory below the reorder point (i.e., 27.5), as noted with asterisks.
Theoretical total cost:
DS QH
T .C. = Order cost + holding cost = +
Q 2
275  50 105  0.25  10
= +
105 2
= 130.95 + 131.25 = $262.20
Note: Order and carrying costs are not equal due to rounding the EOQ to a whole number.
Actual cost:
T .C. = Order cost + Holding cost
= 3 orders  $50 per order + 630 units
 $0.25 unit period
= 150 + 157.50 = $307.50

(b) Lot for lot:

Week
This
Week 1 2 3 4 5 6 7 8 9 10
Gr req 35 30 45 0 10 40 30 0 30 55
Beg inv 0 0 0 0 0 0 0 0 0 0 0
End inv 0 0 0 0 0 0 0 0 0 0 0
Ord rcpt 35 30 45 10 40 30 30 55
Ord rel 35 30 45 10 40 30 30 55

Calculating total cost:

T .C. = Order cost + Holding cost
= 8 orders  $50 order + 0 (no holding cost)
= $400.00

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