OPERATIONS PLANNING & CONTROL

Presentation on

Materials Requirement Planning (MRP)

Joju Johny Roll No: 17

Materials Requirement Planning

Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. It is a planning tool geared specifically to assembly operations. The aim is to allow each manufacturing unit to tell its supplier what parts it requires and when it requires them. The supplier may be the upstream process within the plant or an outside supplier. It is probably the most widely used planning and scheduling tool in the world. MRP was created to tackle the problem of 'dependent demand'; determining how many of a particular component is required knowing the number of finished products. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. Advances in computer hardware made the calculation easy.

Objectives
An MRP system is intended to simultaneously meet three objectives

1. Ensure materials and products are available for production and delivery to customers 2. Maintain the lowest possible level of inventory. 3. Plan manufacturing activities, delivery schedules and purchasing activities.
A companys goals for an MRP system probably include reducing: WIP, Raw Material and Finished Goods Inventories

Order Change Resistance

Expediting Delinquent Orders

Information Needed for MRP

1. Demand for all products. 2.

Information Obtained from MRP

Planned orders: replenishment orders to be released at a future time

Lead times for all finished goods, Order release notice: notices to release components, parts and raw materials planned orders

3. Lot sizing policies for all parts

Action notices: notices to expedite, deexpedite, or cancel orders, or to change order quantities or due dates

4. Opening inventory levels

Priority reports: information regarding which orders should be given priority

5. Safety stock requirements

Inventory status information . Performance reports such as inactive items, actual lead times, late orders, etc

6.

Any orders previously placed but which haven't arrived yet

History of MRP
In the earlier days reorder-point/reorder-quantity (ROP/ROQ) type methods like EOQ had been used in manufacturing and inventory management. In the 1960s, Joseph Orlicky studied the TOYOTA Manufacturing Program and developed Material Requirements Planning (MRP)

Oliver Wight and George Plossl then developed MRP into manufacturing resource planning (MRP II).
By 1975, MRP was implemented in 150 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).

Logic of MRP
The main purpose of Material Requirement Planning (MRP I) is to facilitate the calculation of requirements of materials and timing (Slack, 2001). To achieve this, it needs to covert three inputs namely bill of material, inventory data and master production schedule into two main outputs namely planned order releases and reschedule notices (Lunn, 1992).

Structure Of MRP

Master Production Schedule

The Master Production Schedule (MPS) is the significant input that drives the MRP system. Primarily, MPS identify the quantity of the particular products that manufacturer is going to produce. To achieve this, MPS needs combining two independent demands namely customer orders and forecasted demand. Two key considerations in setting up the MPS are the size of `time buckets' and the `planning horizons'. A `time bucket' is the unit of time on which the schedule is constructed and is typically daily or weekly. The `planning horizon' is how far to plan forward, and is determined by how far ahead demand is known and by the lead times through the operation There are three distinct steps in preparing an MRP schedule:
Exploding: lists how many, of what components, are needed for each item (part, sub assembly, final assembly, finished product) of manufacture. Netting: gives the quantity of each item needed to manufacture the required finished products. Offsetting: determines when manufacturing should start so that the finished items are available when required.

Bill of Material
Bill of Material (BOM) is another input of MRP system, which clarifies the structure of an independent demand item (Slack et al, 2001). Generally, there are three significant types of BOM namely single level, multi levels, and indented BOM. To sum up, bill of material enables MRP to identify that which part and how many of them is required for any particular item

Inventory Data
Inventory data facilitate MRP system identifying inventory status so as to calculate a net requirement (Slack et al, 2001). Generally, inventory data consist of three files as follows (Slack et al, 2001):
The item master file: In order to identify a particular part, the first element of the item master file is a unique part number, which is assigned to all components (Slack et al, 2001). item. The transaction file: This file, logically, calculate inventory levels by referring to all transactions such as receipts into stock. The location file: The location file facilitates the MRP system locating the location of any particular part (Slack et al, 2001).

Example
X

A(2)

B(1)

C(3)
Item X A B On Hand 50 75 25

C(2)
Lead Time ( Weeks ) 2 3 1

D(5)

C
D

10
20

2
2

X
Gross Requirements Scheduled Reciepts Inventory On Hand Net Requirements Planned Order Reciepts

Weeks

10 95

50

50

50

50

50

50

50

50

50

50

50 45

45

A
Gross Requirements Scheduled Reciepts Inventory On Hand Net Requirements Planned Order Reciepts 15 75 15 90

Benefits of MRP
If MRP is implemented correctly it has many benefits that will help improve productivity etc continuously. Here is a summary of the benefits below: Reduced Inventory with fewer (none) shortages Improved Customer Service Improved Direct Labour Productivity

Reduced Purchasing Cost

Reduced Traffic Cost Reduced Obsolescence Reduced Overtime Having the numbers to run the business Having accountability throughout the organisation Improved Quality of Life

Scope of MRP in manufacturing

MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities.

"Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it

takes to make them. This means that some level of planning is required.

Companies need to control the types and quantities of

materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money

Consumption-Based Planning
CBP uses past consumption data (historical data) to calculate future requirements with the help of the material forecast or static planning procedures. Consumption-based planning procedures have no reference to the master plan. The net requirements calculation is triggered when stock levels fall below a reorder point or by forecast requirements calculated from past consumption data. The advantage of this type of planning is that it is easy to use and you do not require extensive data.

The MRP procedures supported in consumption-based planning are: Reorder Point Planning : based on material consumption Forecast-Based Planning : using historical values and forecast values Time-Phased Planning: depending on a particular time cycle.

Why certain business are highly critical of their MRP systems ?

The MRP system is the excellent idea. However, in practice, the organization may find that the benefits from implementing the MRP system are too small compared to the investment. Generally, there are a number of issues related to disadvantages of MRP systems. Cost Uncertainty with software Time Training Involvement and Acceptance

Problems with MRP systems

The major problem with MRP systems is the integrity of the data Another major problem with MRP systems is the requirement that the user specifies; how long it will take a factory to make a product from its component parts A manufacturer may have factories in different cities or even countries. It is no good for an MRP system to say that we do not need to order some material because we have plenty thousands of miles away Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently The other major drawback of MRP is that it takes no account of capacity in its calculations

Extensions of MRP
Three major extensions of MRP are:
Closed loop MRP: consistent with the basic structure of MRP but in addition, it employs the use of feedback to improve the accuracy of the plan Materials Resource Planning (MRP II): It allows for the inventory data to be defined not as just units or quantities, but through the consideration of the additional resources incorporated in the units such as: labor hours, machine hours and accounts payable. Enterprise Resource Planning ERP:an integrated computer-based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources