MRP: Material Requirement Planning

MRP II : Manufacturing Resource Planning

ERP : Enterprise Resource Planning
What is MRP (computer based management information system developed in
1960)
1) It is computerized inventory control and production planning system
2) It is a system for planning the future requirements of dependent demand
items
3) It is useful when product is complex and production on process involves
many components and sub assemblies like AUTOMOBILE MANUFACTURE
4) It helps operation manager to find out net requirement of a component after
taking into account inventory on hand scheduled receipts and scheduled
order releases
5) MRP generates schedule for materials and component supply after
consideration of end product requirements, product structure data (product
production hierarchy) and historical lead line information
6) MRP is useful for the organizations involved
1) production of complex products
2) organizations working with short delivery schedules
3) job order type of production system i.e. assembly to order organization
4) in complex organization doing manual and modifications in production
schedules in responding to external mkt conditions take considerable
time
5) based on the demand for end product MRP system disassembles the end
product into asslerors, sumbassemlia components
6) MRP is backward scheduling process that estimates requirement of
materials starting with the date of requirement and working backward to
estimate the date of receipt keeping in view production and waiting time
and estimating date of order based on delivery lead time
1) MRP system helps in coordinating orders for external and internal sources

External
Internal sources

sources

P.O.
Internal jobs order

(External

order

is

P.O.)

The system studies :1) The future production requirements and disassembles the end product
into
a) Required amount of MTL
b) Parts
c) Sub assemblies
d) Assemblies
Required in each time period of planning horizon
2) Then it determines the existing level of intruders for each item and the
required order quantities
3) Finally a schedule is generated that specifies time when items are
required. This schedule takes into consideration the time when each item
is needed in production. The lead times available for procuring item
4) This ensures availability of parts and materials exactly when they are
required in the production process
Ideally MRP system aims at replenishing the material stock when they are
required in the production process. In the real world situations thus may
not be feasible. As a result MRP system regularly examines the production
schedule to identify schedule disruptions and adjust the material flow to
reduce the levels of WIP inventories.
The decisions regarding installation of MRP system and its featurs
required in the system depends on
1) The type of production
2) Time considerations in diverting products to market demand
OBJECTIVES OF MRP
1) Improved customer service
2) Reduced investment in inventory
3) Improved operating efficiency
4) Faster response to market changes
ADVANTAGES OF MRP
1) To reduce unit cost of production and enabling the organization to price its
product competitively
2) Lower inventory levels especially WIP
3) Better response to market
4) Better customer service
5) Comprehensive material tracking and optimized production schedules
6) Improvement in capacity allocation and planning
MRP

INPUT
PROCESSES
OUTPUT

COMPONENTS OF MRP SYSTEM

OR
OVERVIEW OF MRP

INVENTORY DATA

MASTER
PRODUCTIO
N SCHEDULE
INVENTORY
TANSACTIONS

INVENTORY
DESIGN CHARGES

INVENTORY
FILE

MRP

BILL OF
MANAGEME
NT

SCHEDULE
OF
PLANNED
P.O.

ACTION
NOTICE
S

SCHEDULE OF
2
PLANNED
FACTORY
ORDERS

MRP :- Overcomes a problems of manual record keeping of dependent inventory

transactions. However the functioning of the system is not confined to the
tabulation of inventory transactions. It extends to processing information for
production scheduling and taking capacity planning decisions.
Since MRP system translates the demand of end products into RM components
requirement.
The following information is essential to the system to operate successfully
1) Customers orders pending for future deliveries and unfinished orders that
must be completed in Planning Production Period
2) Demand forecasts that specify the quantities of products demanded and the
time period in which these demands are to be satisfied
3) Capacity information that helps in anticipating and correcting resource
shortages
4) Details of dependent demand inventory items at the various stages of the
transformation process and the stages through which these items traverse to
make the end product (routing).
5) Changes in inventory requirements due to product design changes expected
during the planning time period.
6) Available level of inventories at the beginning of the planning time period
7) Quantities of ordered, purchased or contracted inventory items that an
organization expects to receive during the planning time period

Once all pre-requisite information is received operation managers convert it into

a form acceptable to MRP system
1) Input2) Processing- a) Explosion 2) Netting 3) Offsetting
3) Output- MRP system generates many types of reports
REPORTS

PRIMARY
SECONDARY
Planning

orders

schedule

for

1) Exception reports
Inventory

and

production

control

2) Planning reports
3) Reports for performance
control

PRIMARY REPORTS
1) Planned orders quantity of inventory required in specification
2) Order release this empower the purchase department to procured
specific quantity of inventory items required within specific period
3) Charges indate revised P.O. if orders are not completed on time. This
reports include delivery period and order quantities based on which orders
can be advanced, delayed, suspended or cancelled if needed.
4) Cancellation or suspension This is because of changes in MPS
SECONDARY REPORTS
These are optional reports that assist operation managers in assessing the
performance of inventory management system
1) Planning reports
2) Performance reports performance of MRP system , at the same time
identification of variables
3) Exception reports contain information about error, late or overdue orders
or any other deviation from normal planned objectives. Exceptional
reports are automatically generated whenever actual delivery of parts,
subassemblies etc differ from planned orders
PROBLEMS IN IMPLIMENTING MRP SYSTEM

1) Inadequate employee training and involvement

2) Use of inaccurate and obsolete data
3) Inappropriate product environment
SCOR [Supply Chain Operation Reference Model]
It implies a measure of standardization of SCM. It includes
1) Reliability the inventory to supply ratio. The nos of items it has been
effective
2) Validity the efficiency and effectiveness of SCM. How many times has it
period worth
3) Expense the cost involved throughout the process right from inventory cost
4) Assets the nos of assets created
The SCOR model includes the following:1) Supplier
2) Factory
3) Warehouse
4) Distributers
This model further emphasis the coordination and cooperation of all the members
involved on SCM right from planning to delivery the products of
1) Right quantity
2) Right quality
3) Right cost
4) Right place
5) Right

Basics of ERP [Enterprise Resource

Planning]
With growing complexity of organizations and increasing information flow between
different business processes the need to coordinate and control the flow of
information to various decision centres has gained importance. The information
between various functions and various levels of management requires an integrated
system is required. Thus requirement is fulfilled by ERP.
Prior to ERP there were various computer systems which were restricted to specific
function. Integrating and coordinatingthese different computer systems and their
data was complex and cumbersome and the complexity of the system was also a
major issue. This problem is over come by ERP which encompasses the entire
spectrum of business processes including
1) Sales management
2) Production management
3) Accounting
4) Human resources
5) Quality management
6) Financial management
7) Materials management
8) Maintainance management
9) Project management
10)
Distributed management/ ware house management
WHAT IS ERP
5) ERP is complete organization wide software system between various
functional ang geographical entities
6) ERP uses a single database in which information from different functional
domain is stored. As a result the information needs and different entities can
be met from single location.
7) ERP is a process that is used for integrated management of business through
efficient use of available resources and with the aim of integrating

information across the company. This integrated approach can for instance
allow production department located in one geographical area to send
financial information to the head office and marketing information of one
location can be accessed by the production department of another location,
capacities of various plants can used accessed by any one. The marketing
patterns can be identified and appropriate responses can be designed.
8) Business modeling is one of the first activities in any ERP project. Its business
model consists of organizations goals, objectives and strategic plan.
9) ERP implementation is an event that involves the complete organization
10)
ERP concept has been around for 50 years though the idea of
integrating all business units to improve productivity has been goal of any
management, the tools to achieve such integration was not available with
increasing sophistication of software packages the dream of integrating
different functional units took place in the software packages that allowed
lively information sharing
11)
ERP extenders the functionality of MRP and MRPII systems to provide
complete business solutions
12)
Because of its wider scope ERP is concerned not for just internal issues
but also takes into account external factors like competition, demand etc
13)
The key aspect of ERP is its ability to integrate different business
entities without being constrained by geographical and functional differences
BUSINESS AS A SYSTEM OR A MODEL
MONEY

PEOPLE

FACILITIES

MATERIAL

INFORMATION
INFORMATION
INPUT

RAW MATERIALS
FINISHING GOODS
COMPONENTS
AND SERVICES
SERVICES

WORKFLOW

OPERATIONS
PROCESS

INPUT

FEEDBACK /CONTROL
7) Business model consists of goals , objectives, strategic plans. A business
model is a diagrammatic representation of different business systems and
processes and their interconnections and interdependencies. The purpose
of business modeling is to provide a general view of the operations of a
business without going into technical details of the processes and
systems. It defines the activities performed and workflow structure
inbroad manner. A business model is developed on basis of goals
objectives and strategic plans. Further the model illustrates how various
business processes exchange information themselves and the underlying
database. A grand business model should be comprehensible coherent
and complete. It should define clearly the different systems and
subsystems of a business system.
8)

Creating integrated data model: Organizations function through

coordination of different departments, functions and levels of
management. For this purpose developing integrated data model is
require for implementation of ERP. The model insures ERP system is able
to integrate and provide the connectivity needed between different
department functions and levels of management. Integration allows
smooth flow of information which helps in decision making process,
besides integration minimizes data redundancy and ensures the
availability of right information to all concerned.

9) Integrated data model reflects day to day transactions and is upgraded

regularly to maintain its effectiveness.
10)
A well- designed data model for ERP system should integrate
information from various process and functions. When integration is
undertaken
issues
such
as
security
confidentiality,
accuracy,
completeness and reliability should be given at most importance once
these issues are worked after, appropriately. The organization generates s
data model that represents the entire organization with an integrated data
flow structure.
EVALUATION OF ERP
4) Initially ERP was developed for manufacturing and distribution but now ERP
packages provide one step solution to all business process requirement
5) Now-a-days many extensive ERP system incorporates customer relationship
management [CRP] supply chain management [SCM] and warehouse
management and other business process solutions

6) ERP as a concept has been around for 50 years. Though the idea of
integrating all business units to improve productivity has always been a goal
of management, the tools to achieve such integration was not available.
ERPs history can be traced back to 1972 when five IBM employees left IBM
and established SAP [system application and products in data processing] in
Waldorf, Germany. SAP was the first company to develop and maintain ERP
software.
ERP as a concept has not changed over the years but its implementation has
changed due to the advances in software and hardware technologies.
7) The roots of ERP development can be traced back to MRP, MRP2 , MRPII is an
extension of MRPI and it was conceived with the objectives of automating all
manufacturing functions and providing and inter-phase with other functional
areas like engineers finance, marketing, purchasing with objective of
automating all manufacturing functions and providing an interface with other
functional domains. As a result it is able to achieve high degree of integration
with other automated processes in the organization.
8) ERP extends the functionality of MRP and MRPII systems to provide complete
business solutions. The key aspect of ERP is its ability to integrate different
business entities without being constrained by geographical and functional
differences.
BUSINESS PROCESS RE-ENGINEERING
It advocates the complete overhaul of the existing system and processes on an
organization in order to increase productivity reduces cost and improve business
practices. Due to dynamic changes taking place in business environment, the
company has to rethink about business processes. A business is a set of logically
related tasks performed to achieve a defined business outcome. It is a structured
and measured set of activities designed to produce a specified output for a
particular customer or market. It implies how work is done in the organizations.
Organizations can improve these processes by analyzing existing processes and
defining the scope for improvement. Another way to rethink the process, which is
core concept of business re-engineering.
B.P.R & IT: Due to increasing use of I.T. in the business has compelled the
organizations to go for business re-engineering because of the implementation of IT
necessitates significant changes in business processes. These changes allow the
organizations to take benefits offered by IT.
ERP IMPLIMENTATION
8) It is long process that involves considerable investment in the form of time
and money

9) It receives involvement of different functions, people, procedures and

ideologies and results if comprehensive change through the organization
Due to complexity and time constraints of organization wide implementation of
ERP, the tasks involved are considerable. To guarantee its success organizations
need to concentrate on the following three issues
7) Functionality
8) Technology
9) Implimentability
ERP IMPLIMENTATION METHODOLOGY
5) Identify the needs of ERP package
6) Evaluating the as in situation of the business
7) Decisions about the desired would be situation for the business
8) Re-engineering of the business process to achieve desired results
9) Evaluation of available ERP packages
For evaluation of a packages following points should be given consideration
7) Global presence
8) Local presence
9) Investment in R&D
10)

Target market

11)

Price

12)

Modularity

13)

Ease of use and cost of implementation

14)

Installation of requisite hardware and networks

IMPLIMENTATION OF ERP PACKAGES

5) Formation of team
6) Involvement of to p management (entire organization)
7) Preparation of implementation plan

8) Mapping of business processes onto packages

9) Gap analysis
10)

Customization

11)

Uploading data from existing system

12)

Test runs

13)

User training

14)
Parallel run
simultaneously

old

and

new

system

15)

Migration to new system

16)

System monitoring and fine tunning

GUIDELINES FOR ERP IMPLIMENTATION

6) Define corporate needs and culture
7) Complete business process change
8) Communicate across organization
9) Provide strong leadership
10)

Select a balanced teary

11)

Select a good method of implementation

12)

Organization wide training

ERP AND COMPETITIVE ADVANTAGE

4) Price order winner in market
5) Delivery reliability and speed
6) Product range

are

put

into

operations