Bills of materials and MRP

A shop forecasts each item on its own. A factory can't: if it plans to build 100 bicycles, the number of wheels, spokes and tyres it needs follows directly. That demand is called dependent, because it depends on another item's plan, while bicycle sales are independent demand that has to be forecast.

The recipe for a product is its bill of materials (BOM): every part, and how many of each, often in levels. A bicycle needs 1 frame and 2 wheels; each wheel needs 1 rim, 1 tyre and 32 spokes. So 10 bicycles need 20 wheels, and 20 wheels need 20 × 32 = 640 spokes.

Material requirements planning (MRP) does this sum for every part, every week. It starts from the master production schedule (what will be built, when), explodes it through the BOM into gross requirements, then nets off what's already there: net requirement = gross requirement − stock on hand − scheduled receipts (orders already on the way), plus any safety stock you want to keep. If you need 500, have 120 on the shelf and 200 on order, you still need to order 180.

Finally MRP offsets by lead time: if spokes take 3 weeks to arrive and are needed in week 6, the order goes out in week 3. The output is a list of planned orders for every part, which buyers turn into purchase orders.

Above all of this sits sales and operations planning (S&OP): a monthly meeting where sales, operations, procurement and finance agree one plan for the next months or so. It's where forecasts, capacity and money get balanced, so that the factory, the buyers and the sales team are all working to the same numbers.