Material requirements planning

Material requirements planning (MRP) is a production planning, scheduling and inventory control system used to manage manufacturing processes. MRP ensures that the correct quantity of a product is available at a point in time. It uses a form of sliding demand in which the inventory position at a near future date is compared to a future forecasted demand (this is the sliding window demand). If the near term inventory is sufficient to cover the future forecasted demand, no additional action is taken. However, if the near term inventory is less than what is required for the future forecasted demand, an order is placed to cover that requirement. You can use MRP as an inventory policy with the "Simulation" problem type.

When working with MRP, the expected/future inventory positions are based on what is currently on hand, what quantity is "due in" and what quantity is "due out". Due in inventory includes orders placed based on inventory requirements and scheduled shipments. Due out inventory includes backorders.

Using MRP for Simulation

You populate the following input tables as described in order to use MRP:

Inventory Policies

• Select "MRP" as the Inventory Policy.
• Enter a near term offset using the DOS Planning Lead Time. For example, if you enter 7 DAY, the near term inventory position will be based on forecast quantities 7 days out from the current date.
• Enter the offset for the future forecasted demand/sliding window demand using the DOS Window.
• Select values in the Forecast Aggregation Period and Forecast Disaggregation Pattern columns. For example, you can select "Monthly" for Forecast Aggregation Period and "5 Days" for Forecast Disaggregation Pattern to evaluate positions on a monthly basis for a 5 day week.

Site Forecasts

• Select the Site at which the forecast is defined.
• Select the Product for which the forecast applies.
• Select the Order Date on which the forecast for the site-product combination is applied.
• Enter the Quantity, which is the forecast value on the order date for the site-product combination.
• Optionally enter a Snapshot Date, which allows for variability when the forecast values are captured.

Transportation Policies

• Define a Transport Time as needed to determine the physical time for moving shipments.

Site Sourcing Policies

• Define a Source Lead Time as needed for use as the planning estimate for when a shipment can be expected as due in.

MRP output

You will see the orders that have been placed based on the MRP policy in the Shipment Transactions table. In addition, the Reorder Quantity Detail and Reorder Point Detail output tables show the sliding window demand.

Calculating inventory and order amounts using MRP

Order amounts are calculated as follows:

• if expected/future inventory position < sliding window demand, then replenishment order = sliding window demand - expected inventory position.
• if expected/future inventory position >= sliding window demand, then there is no replenishment order (it is 0).

The Order Date and Quantity from the Site Forecasts table are evaluated to determine the lead time demand and future demand. The approach is generally as follows:

• Lead Time Demand: The quantities from the Site Forecasts table number of days defined by the DOS Planning Lead Time.
• Due In: All Order Amount values (replenishment shipments) plus any scheduled shipments, minus any order amounts received.
  • If you have a Transport Time defined in Transportation Policies, order amounts are received once the Transport Time is complete.
  • If you have a Source Lead Time defined in Site Sourcing Policies, order amounts are received once the date is within the Source Lead Time, even if the Transport Time is longer.
• Due Out: Any backorders that must be satisfied.
• Expected Inventory Position: On-Hand Inventory - Lead Time Demand + Due In - Due Out
• Future Sliding Window Demand: The quantities from the Site Forecasts table for the 10 days starting after the Lead Time Demand.
• Order Amount: If Expected Inventory Position < Future Sliding Window Demand, this is Future Sliding Window Demand - Expected Inventory Position.

MRP Examples

The following examples illustrate MRP both with and without the use of Source Lead Time.

In your model, you can verify the order amounts using the Shipment Transactions table.

Case 1: No Source Lead Time

We have customer demand of 5 units every day for 20 days from the start of the model horizon. In the first case, we are using Transport Time, not Source Lead Time. We are considering the inventory position at site 1001. The model horizon is 2/12/2019 to 3/2/2019.

The inventory policy is defined as follows:

The DOS Planning Lead Time of 7 sets the lead time demand and the DOS Window of 10 sets the distant future.

In Transportation Policies, there is a 15 DAY Transport Time from the DC to site 1001.

We will use the table below to review how the inventory and orders are determined:

• Order Date: From the Site Forecasts table
• Quantity: From the Site Forecasts table
• 7 Day Offset: The quantities from the Site Forecasts table for the next 7 days (the DOS Planning Lead Time).
• Due In: Accumulates all Order Amount values (replenishment shipments) plus any scheduled shipments, minus any order amounts received.
• Due Out: Any backorders that must be satisfied.
• Expected Inventory Position: On-Hand Inventory - 7 Day Offset + Due In - Due Out
• 10 Day Sliding Window Demand: The quantities from the Site Forecasts table for the 10 days starting after the 7 Day Offset.
• Order Amount: If Expected Inventory Position < 10 Day Sliding Window Demand, this is 10 Day Sliding Window Demand - Expected Inventory Position.

We have a Review Period of Daily, so the first date we consider is 2/13/2019. On 2/13/2019:

• 7 Day Offset is 5: forecast Quantity from 2/13/2019 through 2/19/2019 (sum of 7 days).
• Due In is 0: there are no replenishment orders or scheduled shipments coming to the site.
• Due Out is 5: used to satisfy customer demand.
• Expected Inventory Position is -10: based on On-Hand - 7 Day Offset + Due In - Due Out (or 0 - 5 + 0 - 5).
• 10 Day Sliding Window Demand is 12: based on forecast Quantity from 2/20/2019 through 3/1/2019 (sum of 10 days).
• Order Amount is 22: the Expected Inventory Position does not exceed the 10 Day Sliding Window Demand. In this case we have a shortage of 10 units plus the 12 required for the 10 Day Sliding Window Demand.

On 2/14/2019:

• Due In is 22: this is the Order Amount from 2/13/2019. However, there is a Transport Time of 15, so this amount is not received until 2/28/2019.

From 2/14/2019 to 2/27/2019:

• Due In: accumulated Order Amounts.
• Due Out: additional 5 units per day based on customer demand.
• Expected Inventory Position: calculated daily based on On-Hand, 7 Day Offset, Due In, Due Out.
• 7 Day Offset and 10 Day Sliding Window Demand: each shift by one day per day.
• Order Amount: calculated based on Expected Inventory Position and 10 Day Sliding Window Demand

On 2/28/2019:

• Due In: the Order Amount from 2/13/2019 is received based on Transport Time of 15 days. The Due In is therefore 79 - 22 = 57.
• Due Out: the received shipment of 22 can serve demand. This means Due Out is 80 - 22 = 58.

Case 2: Source Lead Time

This example is set up with the same values as Case 1. The difference is that we now include a Source Lead Time of 10 in the Site Sourcing Policies table.

The 7 Day Offset and Due Out values remain the same as in the first case. However, we now also look 7 days out to see when the order is available based on the Source Lead Time, rather than the Transport Time. This determines the Due In.

Since we have a Review Period of Daily, so the first date we consider is 2/13/2019:

• 7 Day Offset is 5: forecast Quantity from 2/13/2019 through 2/19/2019 (sum of 7 days).
• Due In is 0: there are no replenishment orders or scheduled shipments coming to the site. With a Source Lead Time of 10, the order is available on 2/23/2019. We also use the 7 day offset to determine if the order can be applied to the Due In. Since 7 days out is 2/19/2019, the order is not part of the Due In value.
• Due Out is 5: used to satisfy customer demand.
• Expected Inventory Position is -10: based on On-Hand - 7 Day Offset + Due In - Due Out (or 0 - 5 + 0 - 5).
• 10 Day Sliding Window Demand is 12: based on forecast Quantity from 2/20/2019 through 3/1/2019 (sum of 10 days).
• Order Amount is 22: the Expected Inventory Position does not exceed the 10 Day Sliding Window Demand. In this case we have a shortage of 10 units plus the 12 required for the 10 Day Sliding Window Demand. With a Source Lead Time of 10, the order is available on 2/23/2019.

On 2/16/2019:

• Due In is 22: this is the Order Amount from 2/13/2019. Now the Order Amount of 22 falls within 7 day lead time, based on the Source Lead Time.

On 2/28/2019:

• Due In: the Order Amount from 2/13/2019 is received based on Transport Time of 15 days. The Due In is therefore 98 - 22 = 76.
• Due Out: the received shipment of 22 can serve demand. This means Due Out is 75 - 22 = 58.