Materials requirements planning:

Materials requirements planning (MRP) is a set of process for converting forecasted demand for a manufactured product into a requirement schedule for the components, subassemblies, & raw materials comprising that product. A closely associated concept is that of the master production schedule (MPS), which is a specification of the projected needs of the end product by time period. The explosion calculus represents the set of rules and procedures for converting the MPS into the requirements at lower levels. The information needed to do the explosion calculus is contained in the product structure diagram and the indented bill-of-materials list. The two key pieces of information contained in the product structure diagram are the production lead times needed to produce the specific component, and the multiplier giving the number of units of the component required to generates one item at the next higher level of the product structure.

Most of MRP systems are depend on a lot-for-lot production schedule. The number of units of a component produced in a period is the same as the requirements for that component in that period. However, if setup and holding costs may be estimated accurately, it is possible to find other lot-sizing rules that are more economical. We have also treated the dynamic lot-sizing problem when capacity constraints exist. One of the restrictions of MRP is that capacities are ignored. This is especially important if lot sizing is incorporated into the system. Determining optimal solutions to a capacity-constrained inventory system subject to time-varying demand is very difficult problem. System nervousness is one difficulty that arises whereas implementing the MRP system, the term refers to the unanticipated changes in a schedule that result when the planning horizon is rolled forward by one period. Another problem is that in many circumstances, production lead times based on the lot sizes; MRP assumes that production lead times are fixed; still another problem is that the yields at various levels of the process cannot be perfect. If the yield rates can be accurately estimated in advance, these rates may be factored into the calculations in a straightforward manner. However, in many industries the yield rates may be difficult to estimate in advance. Generally MRP II is implemented to overcome some difficulties involved in implication procedure of MRP. It integrates financial, accounting and marketing functions of the production planning system.