MATERIAL REQUIRMENT PLANNING(MRP)

Abhishek Archana

BipinRam

RajendraSunanda

MATERIAL REQUIREMENT PLANNING(MRP)

• A dependent demand technique that uses bills-of- material, inventory, expected receipts, and a master production schedule to determine material requirements

• It is a software based production, planning and inventory control system used to manage the manufacturing process•Dependent demand drives MRP

MRP OBJECTIVES

Reduction in Inventory Cost: By providing the right quantity of material at right time to meet master production schedule, MRP tries to avoid the cost of excessive inventory.

Meeting Delivery Schedule: By minimizing the delays in materials procurement, production decision making, MRP helps avoid delays in production thereby meeting delivery schedules more consistently.

Improved Performance: By stream lining the production operations and minimizing the unplanned interruptions, MRP focuses on having all components available at right place in right quantity at right time.

DEPENDENT INVENTORY MODEL REQUIREMENTS

Effective use of dependent inventory models requires that the operations manager know the following:

• Master production schedule• Specifications or bill of material• Inventory availability• Purchase orders outstanding• Lead times

MASTER PRODUCTION SCHEDULE

• MPS is derived from the aggregate schedule

• It is a timetable that specifies what is to be made and when.

• It tells us what is required to satisfy demand and meet the production plan

• The schedule must be in accordance with a production plan

THE PLANNING PROCESS

7

STRUCTURE OF THE MRP SYSTEM

MRP by period report

MRP by date report

Planned orders report

Purchase requirements

Exception reports

MRPPrograms

Master ProductionSchedule

BOM

Lead Times

(Item Master File)

(Bill-of-Material)

Inventory Data

Purchasing data

Data Files O/p reports

BILLS OF MATERIALS

•BOM is a list of quantities of components, ingredients, and materials required to make a product•A bill of material defines a product by providing a product structure

Types of Bills:•Modular bills- Bills of material for modules are called modular bills•Bills of material organized by major subassemblies or by product options•Super bill: It includes items with fractional options

BOM (Contd…)

Phantom bills of material- Bills of material for components, usually assemblies, that exist only temporarily; they are never inventoried.

Low-level coding- A number that identifies items at the lowest level at which they occur. Low-level coding ensures that an item is always at the lowest level of usage.

Inventory Availability - It simply means that what is in stock

Purchase Orders Outstanding – It simply means that what is on order

Lead Time – The time required to acquire i.e. purchase, produce , or assemble an item is known as lead time

BENEFITS OF MRP

•Inventory Reduction

•Reduction in production and delivery time

•Increased efficiency

•Faster response to market changes

•Improved labor and equipment utilization

•Better inventory planning and scheduling

LOT-SIZING TECHNIQUES

Static•Economic Order Quantity (EOQ)

Dynamic•Lot-For-Lot (L4L)

LOT SIZING – L4L TECHNIQUE

Lot sizing technique that generates exactly what is needed No safety stock or anticipation of further orders Works most efficiently when

Frequent orders are economical (low set-up or ordering costs)

JIT inventory techniques has been implemented

LOT SIZING TECHNIQUE

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

50 60 70 60 95 75 60 55

Production Quantity

Consider the given lot sizing problem, the net requirement are given for 8 weeks

Cost per item Rs 10Order/Setup cost Rs 47Inventory carrying cost/week 0.5 %

LOT SIZING – L4L TECHNIQUE

Week

Net Requirement

Production

Quantity

Ending Quantity

Holding Cost

Set up Cost

Total Cost

1 50 50 0 Rs 0.00 Rs 47 Rs 47

2 60 60 0 0.00 47 94

3 70 70 0 0.00 47 141

4 60 60 0 0.00 47 188

5 95 95 0 0.00 47 235

6 75 75 0 0.00 47 282

7 60 60 0 0.00 47 329

8 55 55 0 0.00 47 376

Lot-for-Lot Run Size for an MRP schedule

Production Quantity

LOT SIZING – EOQ TECHNIQUE

It determines the amount of an item to be purchased or made at one time

The main goal in this technique is to minimize the combined cost of order and carrying inventory

LOT SIZING – EOQ TECHNIQUE

Week

Net Requirement

Production

Quantity

Ending Inventory

Holding Cost

Set up Cost

Total Cost

1 50 351 301 Rs 15.05 Rs 47 Rs 62.05

2 60 0 241 12.05 0 74.10

3 70 0 171 8.55 0 82.65

4 60 0 111 5.55 0 88.20

5 95 0 16 0.80 0 89.00

6 75 351 292 14.60 47 150.60

7 60 0 232 11.60 0 162.20

8 55 0 177 8.85 0 171.05

EOQ Run Size for an MRP schedule

∑=525

Annual demand = D = 525 x 52 = 3412.5 units

8Annual holding cost =H= 0.5%xRs 10x52 weeks=2.60 units

Setup cost = S = Rs 47

EOQ = √2DS = 351 units

√ H

LOT SIZING – EOQ TECHNIQUE

MRP DYNAMICS

• Changes occur in the material requirement according to the changes in the master production schedule.• Central strength of MRP is its timely and accurate replanning capability.• MRP “system nervousness”• Two tools to solve MRP system nervousness - Time Fences: Allows a part of the master schedule to be designated as “not to be rescheduled”. - Pegging: Tracing upward in the BOM from the components to the parent item.

MRP AND JIT

MRP does not do detail schedulingMRP is a planning technique with fixed lead

times.MRP provides the plan and an accurate picture of

requirements.JIT rapidly moves material in small batches,

reducing work in process inventory.Four approaches for integrating MRP and JIT - Finite Capacity Scheduling (FCS) - Small Bucket Approach - Balanced Flow Approach - Supermarket

FINITE CAPACITY PLANNING An approach to understand how much work can be

produced in a certain period of time, taking limitations on different resources into consideration.

It provides the precise scheduling needed for rapid material movement.

The allocation of resources over time to perform a set of tasks.

The goal of finite capacity scheduling is to ensure that work proceeds at an even and efficient pace throughout the plant

SMALL BUCKET APPROACH

Buckets: Time units in a material requirements planning system.

An approach used while integrating MRP and JIT.Steps of integration: 1) Reduce MRP buckets from weekly to daily to

perhaps hourly. Use of bucketless system in which all time-phased data have dates attached rather than defined time periods or buckets.

2) Planned receipts which are part of the planned orders in an MRP system are communicated to the work areas for production purposes and used to sequence production.

SMALL BUCKET APPROACH (contd.)

3) Inventory is moved through the plant on a JIT basis. 4) After products are manufactured they are moved to the

inventory. Receipt of these products into inventory reduces the quantities required for subsequent planned orders in the MRP system.

5) Back Flush system is used to reduce inventory balances. Back Flushing uses the bill of material to deduct component quantities from inventory as each unit is completed.

Note: Back Flush is a system to reduce inventory balances by deducting everything in the bill of material on completion of one unit.

BALANCED FLOW APPROACH

Supports planning and scheduling necessary for repetitive operations

Planning portion of MRP is combined with JIT execution.

JIT portion uses kanbans, visual signals and reliable suppliers to pull material through facility.

SUPERMARKET

Subassemblies, components and hardware items can be maintained in common area called as supermarket.

Items are replenished by JIT/kanban systemKanban is a signaling system to trigger

action. It uses cards to signal the need of an item

Kanban is a Japanese word .Kan means Visual and ban means card.

EXTENSIONS OF MRP

•Closed Loop MRP

•Capacity Planning-Load Reports

•MRP II – Manufacturing Resource Planning

CLOSED LOOP MRP

MRP system that has information feedback from its module outputs.

Provides information to capacity plan, MPS and production plan.

Includes manufacturing control functions of input-output measurement, detailed scheduling, dispatching, supplier scheduling.

Implies that not only all the elements are included in overall system but also feedback is provided so that planning are kept valid at all times.

CLOSED LOOP MRP SYSTEM SHOWING FEEDBACK

Producti

on planning

Master producti

on scheduli

ng

Material requirem

ents planning

Capacity

requirements

planning

Realisitic

Executecapacity

Plans

Execute material plans

No

Yes

CAPACITY PLANNING

Capacity requirements planning: The process of determining short-range capacity requirements.

Load reports: Shows resource requirement in work centers for all work currently assigned to the work centers, all work planned and expected orders.

Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

CAPACITY PLANNING

Tactics for smoothing the load and minimizing the impact of changed lead time include:

Overlapping: reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation.

Operations Splitting: sends the lot to two different machines for the same operation.

Lot Splitting : Breaking up the order and running part of it ahead of the schedule.

CAPACITY PLANNING

Develop a tentativemaster production

schedule

Use MRP to

simulate material

requirements

Convert material

requirements to

resource requiremen

tsFirm up a portion

of the MPS

Is shopcapacity

adequate?

Can capacity be

changed to meet requirements

Revise tentative

master producti

onschedule

Changecapacity

Yes

No

Yes

No

MRP IIManufacturing Resource Planning(Ollie

Wight)To plan and monitor all the resources of

manufacturing firm -manufacturing, marketing, finance and

engineering through closed loop system.Stimulates manufacturing system allowing

visibility of what should occur in future and better planning.

HOW MRP-II DIFFER FROM MRP?

In MRP, planning is made to determine the material requirement so as to manage the manufacturing process only.

MRP II integrates functions with the firm in addition to the management for dependent demand inventories.

Example: Order entry, Invoicing, Billing, Purchasing, Capacity Planning, Warehouse management

MRP IN SERVICESCan be used when demand for service item is directly

related to or derived from demand for other services Restaurant – rolls required for each meal Hospitals – implements for surgery

• Valuable in producing services - service scheduling consists of identifying the final service and then tracing back to the resources needed, such as equipment, space, and personnel.

MRP IN SERVICES (contd…)

Service applications such as:Professional servicesPostal servicesRetailBankingHealthcareHigher educationEngineeringLogistical servicesReal estate

ENTERPRISE RESOURCE PLANNING(ERP)Computer system that integrates application

programs in accounting(accounts receivables), sales(order booking), manufacturing(product shipping), and other functions in the firm.

This integration is accomplished through a database shared by all application programs

ENTERPRISE RESOURCE PLANNING(contd)

Information system for identifying and planning the enterprise wide resources needed to:

-Take -Make -Ship -Account for the customer orders

ADVANTAGES OF ERPProvides integration of supply chain,

production and administrative process.Provides strategic advantage over

competitorsIncreases communication and collaboration

among the business unitsCan incorporate, improved, reengineered,

“best processes”

DISADVANTAGES OF ERP

Expensive to purchase and costly to customize

Complex for the companies to adjustInvolves ongoing process for implementation Implementation requires major changes in

the company and its processes

ERP IN SERVICE SECTOR

ERP systems have been developed for health care, government, retail stores, hotels, and financial services

Also called efficient consumer response (ECR) systems

Objective : tie sales to buying, inventory, logistics, and production

DISTRIBUTION REQUIREMENT PLANNING(DRP)

A time-phased stock replenishment technique for distribution networks based on MRP procedures and logic.

It is a method used in business administration for planning orders within a supply chain.

DRP uses several variables:the on-hand inventory at the end of a period. the backordered demand at the end of a period. the required quantity of product needed at the beginning of a

period. the constrained quantity of product available at the beginning of

a period. the recommended order quantity at the beginning of a period.

DISTRIBUTION RESOURCE PLANNING(Contd.)

DRP needs the following information:the demand in a future period. the scheduled receipts at the beginning of a

period. the safety stock requirement for a period. the on-hand inventory at the beginning of a

period.

QUIZ1)What is MPS?

a) Manufacturing Production Schedule b) Material Production Schedule c) Master Production Schedule d) Master Production System

2)Which of the following is not a component of the MRP system?

a) Master Production Schedule b) Bills of Material c) Inventory Status File d) Just in Time

3) Which of the following is not an approach for integrating MRP and JIT?

a) Finite Capacity Scheduling (FCS) b) Small Bucket Approach c) Backward Scheduling d) Supermarket

4) What does the term “bucket” mean?

(a) Amount of material required(b) Work in process inventory(c) Time units(d) Amount of material previously used

5.) Which of the following is a type of Bills of Material?

(a) Order Bill(b) Planning Bill(c) Receipt Bill(d) Model Bill