Many companies use a materials requirement planning

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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 of materials. The advantage of the MRP system is that it fo...
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