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Unformatted text preview: production
needs to available inventory
balances and determine when
orders should be placed for
various items on a product’s bill
of materials. Many companies use a materials requirement planning (MRP) system to determine what materials to order and when to order them. MRP applies EOQ concepts to determine how much to order. By means of a computer, it simulates each
product’s bill of materials, inventory status, and manufacturing process. The bill
of materials is simply a list of all the parts and materials that go into making the
finished product. For a given production plan, the computer simulates materials
requirements by comparing production needs to available inventory balances. On
the basis of the time it takes for a product that is in process to move through the
various production stages and the lead time required to get materials, the MRP
system determines when orders should be placed for the various items on the bill
The advantage of the MRP system is that it fo...
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