While the basic ideas of MRP are simple, the details can get very messy. We will go through the MRP procedure in enough detail to give you the idea of the basic workings of most commercial MRP systems.

The following notation will be used.

Dt = Gross requirements

St = Quantity currently scheduled to comple in period t, (i.e., a scheduled receipt).

It = Projected on-hand inventory for the end of period t, where current on-hand inventory is given by I0.

Nt=Net requirement for period t.

With these we will now describe the four basic steps of MRP: netting, lot-sizing, time-phasing, and BOM explosion.

**Netting.**

Netting, or coverage analysis, provides two important functions:

- It adjusts scheduled receipts by expediting those that are currently scheduled to arrive too late and deferring those currently scheduled to arrive too soon
- It computes net demand.

It = It-1 – Dt

Adjusted Scheduled Receipts, Projected On-Hand, and net Requirements.

Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |

Scheduled receipts | 10 | 10 | 100 | |||||

Adjusted SRs | ||||||||

Projected on-hand: 20 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

Lot Sizing. Once we have computed the net requirements, we must schedule production quantities to satisfy them. For clarity and to illustrate the basic MRP computations, we restrict our attention at this point to two very simple lot-sizing rules.

The simplest lot-sizing rule, known as lot-for-lot, states the amount to be produced in a period is equal to that periods net requirements. This policy is easier to use than the fixed quantity policy and is consistent with just in time philosophy of making only what is needed.

Another simple rule is fixed order period (FOP). This rules attempts to reduce the number of setups by combining the net requirements of P periods. Note that when P=1, FOP is equivalent to lot-for-lot. Returning to our example, assume that the lot-sizing rule for part A is fixed with period 2.

Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |

Scheduled receipts | 10 | 10 | 100 | |||||

Adjusted SRs | ||||||||

Projected on-hand: 20 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

Time phasing. Almost universally, MRP systems assume that the time to make a part is fixed, although a few systems do allow for the planned lead time to be a function of the job size. Now we will return to our example and assume that the planned lead time for the part A is two periods, we are able to compute the planned order releases.

Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |

Scheduled receipts | 10 | 10 | 100 | |||||

Adjusted SRs | ||||||||

Projected on-hand: 20 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

BOM Explosion. In the last table we can see final result of processing part A. Recall that part A is made of 1 unit of part B and 2 units of part C. Thus the planned order releases generated for part A create gross requirements for parts B and C. Specifically we need 90 units of part C in period 4 (two are needed for each unit of A) and 60 units for period 6. Lets suppose that there are no scheduled receipts for part but there are 100 units on the stock, we must calculate planned order releases by the rule lot-for-lot. The lead time is two periods.

Part C | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | ||||||||

Scheduled receipts | ||||||||

Adjusted SRs | ||||||||

Projected on-hand: 100 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

So there are no more levels for unit C, the calculation is completed. Now we should start the calculations for the part B, and afterward for the parts D and E.

The requirement for the unit B is the same as for the unit A. There are 10 units of unit B at the stock. The lead time is one period. Lot sizing rule is lot-for-lot

Part B | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 45 | 30 | ||||||

Scheduled receipts | ||||||||

Adjusted SRs | ||||||||

Projected on-hand: 10 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

The result will give us important information for next level BOM processing for parts D and E. The requirement for the part D will be 3 *B part requirement for part B and the requirement for part E will be 4 * B part requirement.

Part D | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 105 | 150 | ||||||

Scheduled receipts | ||||||||

Adjusted SRs | ||||||||

Projected on-hand: 10 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

Part E | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |

Gross requirements | 140 | 200 | ||||||

Scheduled receipts | ||||||||

Adjusted SRs | ||||||||

Projected on-hand: 10 | ||||||||

Net requirements | ||||||||

Planned order receipts | ||||||||

Planned order releases |

We have now completed the MRP processing for all the parts of interest. As the result system generates summary of outputs table