Dt. M. Ahvn Akhtot Hasin, lPE, BAET.

Chapter l6
Inventory Systems for Dependent Demand
(MRP System)

Anilc defrahd! .l independert iremsj i.e. the finished loods, aft loreca$ed, demonds oi
dependent lype ofilems are derircd or snpured using MRPII syslems. MRPII nrnds for
Matrufacturing Resource Pl.nnids and MRP nands for Mareiial RequireDenh PllntrinE.
MRP is a pon ollhe *hole MRPII slnem

Th. evolurion ofihe curent syslen has Gken long rifre. almon psmltclto rhe historv of
!6ring compurariona Dorer ofcomputere. Thc eartien maieriah phnnin! synem nared
*ith si,nply preparing a lhl olcofrpohen$ rcquiied ro make thc finhhed prcducr, shich is
curentlylnownasBillolMateriahThcfisrsuohpogmm{€skro*nasBilLofMalerills
Procesor (BOMP). developed by Cene Thomas and usod ar IBM in the 1960s. Atenards
mlE delailed Mulerial Requiremen6 PlanninE (MRP) algorithn sas developcd ,long *irh
BOM. Since, MRP systcms require huge.onpuration on a lal8e anount oldahj sirh rhe
adveni olporverltrl .onp[eft. thhcompurarion h6 becomeeasi$. Since rhen. MRP came a
lof,! \ray, naning from humbLe compurine olomount ol nareriah onLy, MRP h6 goqn
rapidly to become a lully inleerated, inreradivc planning sysrem ccpablc of complete
conpanyrvi'le plannins syslem. This syeefr (or, 2nd seieration MRP s),nem) ii knorvn os
ManulacrurinE Resou(e Planning (MRIll) slstem.

The facilnles conrinued lo groa. Nolv-r-dals. ekcrrcnic comnunicalion. web aid inrernet
hare made exchangd olbusi.e$ documena, sourcing snd ordering vcry fin and reliable.
When these electonic communication s)stems have been addcd ro MRPL system, this is
knorvn as Enteaftc Rcsource Planninc (ERP) sysen, a lrd geneddon s!$em makins-
commerceviable. nEcurenrERPsyslenhcapablcoffrulri sheiniegEtedplainlng.

A coDrplete ERP syslem includes 20 or Dore modules cofuoiling lhe enrire sy*em, riom
oderenlrythrcugh scheduling, inventory conlrcl, financc. ac.ounring, pa)rcI|, HRM, mdso
on.ln lad. noN-a-days,lhis syslem isconsidered asaconplemenl&y infomarion sy*em to
oqanizc, op$are and c.nhlrhc completc Suppll Chain olrhe organiztion. lt has Supplier
Relationship Manasement (SRM) pan ro manase the back$ard linkase olihe supply chain
and Cusiomer Relariondip Management (CRM) pan 10 nanagc rhc tb ard llnkage ollhe

Ulrimaic purposes of MRPII are:

o whal ilems lo oder

c HoNmuchtoorder

o WGn ro schedule delivery

Sonc .ofrmerciolly Copular ERP/MRP slsloms arc: S,^P, BaaN, Orecle-based sysem,
MRP9000, Micro-Max- etc
Df, M. Ah:on 4rhtat Easin, IPE, BUET.

Basic IIRPII System

The basic compurarion.lpan ofMRPlt k sho$n betoq. ln faci rhe Nhotc MRPI syslem
.o'.arn. _o'e Todu'e .l e, rlRv. Par'ol De.Cr. Ma'kuing \Jl" ..o n.') -or
Thc MRP Il syftm irtcerarcs rhcse modules tocether so rhat rhe) use common dara and
lreely exchangc inltmation. in a model olhoq , manufacturine enlerprisc should and can
opeEte.lheMRPllapproachisrherelore!er!diilermrhomrhe"toi soution approach.
wherc individurl synems are deployed lo help a compxiy plan. conrrctor monaec a spccitic
activlty. MRP Il is by d3finirion lully intesrated or ar ler$ aullv interlaced.

MRPll syncm is a hierechical planning syeem. Dependi4 upon c.pdciry limiraliln o.

availabilir!. targer pmducrion plan (Master Prcducrion Schedule-Mps) or Mareriai
Requireoenb Plan (MRP) na! be revised. ThE rcqunos infomarion reedback lmm lo\rr
leleh Io upper lcvek. Ameican Prcduclion and lnvenro'f Conlrol Sociery (APICS) have
na'nedlhis Closed Loop MRP,

Here. based on foEc!$ or cusom.rorder, rhe combined aggreS.rc pla. is prepared. Then an
MPS is piepared Nhich shor6 treekll demand lor individual model The MPS h rhen
expan'led tu prodce derailed marerials plan under MRIr, At lhis srage, a .apacir)
requiremenl t verified against capacitlr available. lfavaiLabtc saprcn, h les than requirei
capa.ir), then borh MPs ald MR? need ro be rcvhcd. Thir ftqtrires intonnarion tee,lback.
Once rhe MRP is finalized, itgchcflesrvornesolordD6:

L Producrion.ide6 for pans to bc manufrcruftd in,house. which arc execuredltihe

2 Purchdine odes for nareriak .equidng purchasing lrom ouhide supptier, shhh
a.e cxecured b] the pu.chasing depanmenr.

Fuiclions rt this leveL {execuling pr.ducrion and purchasinE order) are .iconnol,-
lovels/luncrion!, and onl, level b.fore rhcsc a4 .,prc'luction ptanninq, levek/tuocttons.

Receni DRP slsems arc highlt nexible too, allowing forcu*omialion ro suit rhe varicd and
specilic requirehmrs of individual.omprnies.

.)6-
Dr. M. Ahson Alhtat Easir, IPE, BUE1.

Wher€ MRP car be used

MRP (or, cumntll knoqn as ERP) is bcing used in a variery.f induslics wilh Job shop
environnent (Deoinglhe some producrive resources, i.e na.hines, equipmem. ctc.j produce
a varieties of prodncc oh sm,ll quanriry lor dillbrenr customers). MRp (ERp) is most
laluablc ind suitable to con,panies involved in asetobly opemtions. tooderately suilabte ro
om..s d.r'ie, a d eo r ..,."b e.o ho e:n %hi\a. on
'rpe
Oie moE poinr to nole: MRP d.cs ior slrk *eLlin comp&ies rhar pDduce a lownufrberot
units uMually. Additionally, ptudlcts for vhich lead rimes rend to be roo t..C a.d roo
uncenain, ir h notsuitabLe.It is also nor suilable lor one-ol,a-kind pradxcr,

Bill orM.terirh (BOM)

A Bill of Mare aL (BOM) is a hiemrchicat drucrure otcohponenls requircd ro make thc
tinGhedgood.ThisshoNsrhesequenceofcomponensthargoiniothetinatpmducr.ABOM
is also called a Pmduct Srructurr.ee Ahhoucnthisfile ismainlyrequned by MRP (Mareriat
Requiremen6 PlanninE) D,odulelvhile generalinE derailed materiak pt,n, thi isrequired brr
hany other modules, such as Purchasiig ffodule- for dercmining wnat matc ats or
con,ponen6 to be ptrrch.sedj lnvenlor! moduls' lor inlenlor, counring and $ock
accounting. elc. The hugc dxrabase, coniainine ,letaited infomation ofBOM, hfrai ained in
a separate il., .amed i:ltem Master file . ln fact, lrem Ma$er nle provides intomatjon ro
MRP and inventorl,modules ollhe complers softrvare.

To compulc the anountoleach iie'n needed atrhc loserleveh, each ilem *ould ned tu bc
cxpanded. i.e. the BOM neeis to bc exploded, BOM explosion proce$ k rho deraited
compurarion of requirencnts.lall iidividual items

._ ------ LeretO

Here, nunbeB in brackel indicate numbcr olpicces Equired to naie one piece othi!h$ sub

Aggregate Planning and Master Producliotr Sch€dulitrg (MPS)

Aggregare phnnirg prcccs deals wirh longe.range plan foi pr.ducri.n olgrcup otproducrs,
It invoLves tansiatins quancily md annual busines ptaft into broad capacny and ouipul
pLa's for rhe inlcmcdiarc rcm (6 ro 13 nonlhr. It doer not add.e$ any spccific product.
Dr. M, Ahtun Akhtdt 1sin, lPE, BUET.

.lther grcups ofpi.duch as a{hole. The nain purpose ofthe aeeregarc ptan is ro specify rhe
optimal combination ofprcduclion rare, the worklore level, and olhcrprodudion ftsources.

The nexr step to aggreaate planning is Mrster Prcduction Schcdu li.g (MP S). which prepares
*ekly prcducio. plan for i.dividual mo,lek/types of items. h is a plan for end ilems, or
fDished 3oods. If some major and imponont sub-asemblies or coDponent nodules se also
sold indepe.dendy, such s a hord disk or mouse ora computer, or a bell ol bicyde, then
scpaide MPS5 may ako be creatcd for rhose subasemblies.

Aggregde prcduction plan specifies pioduct gmup!.It dcs nol specify individual producr or
item. It h aho a longertem pld. Ihe nexr level do\u in lhc planninA proce$ is the naster
prcduction schedule (MPS). !is a lime-phased plan specirylng tquiEments and morc
sp{ific rimings of each indiridual prcduct or ncm n is also a shoner plan lhan a$re8atc
plan. An MPS, Bhich is Cenerall] a weekly plai, may be pEpared lor a period.tthrBe
months to one yearj depending upon $abiliry of demand. The MPS is alio catted

The quenion olfiexibilnt *ithin an MPs depcnds o. reveral facbN: prcduction lead rimc.
nabiliO, or un.enainty ol demand. exces capacity and plonnine skilt. Il den,nd ch,iges
rrequentl!becauseolhi8hlevsloruncenainty,itmaynolbepossiblerochangeptans(MpS)
so liequenny. Thar is wh)r plans (MPS) arc "Fmzen" fron time zerc up ro a ccftain iime
period. Thc lengrh ol 'Frczen" period depends on pmducl lype d levet ofstability. Aner
lhal changes na)r take place depending upo. markcr behavior.

still runner doM is delailed matcri,ls plan (MRP) for an cnd pmducr.

AnexamplcofaggregaleplanandcoriespoadingMPS isgiven belorv, which can cxplri.rhe

relationship berween Agsregare Plan (AP) and Msrer Poduclion Schedule (MPS). whiLe rhe
AP specilies the rcquiremenh lorallmodels ofbicyctes io8cther on no.thty (or sometimes
longer than a month, such as quanerll. halfleally, elc.) bash, rhc MPS disaggregales the
plan inlo shon€r *eekly plans f.r indiyidual models olbiqycles, Somelimes. MPS can bc
prcpared ondaill basis roo, ilsuficienr sabilny ordenand exists.

900

'/l\
I
/\\

200
Dt M. Ah\a ,1kttor lto\ii,lPE, AUET.

Advantages !nd Dhadvantages or MRP/ERP

l. Reduced inventory, bccauscolontimeprocuremenr

2. Lesinvcnroryco$
l. Bdtdcusromer seNicelhrou8h on tine delivery
,1. Inle8rated plaming makes all fu.crioirl plans bener
5. Crcats a plaf.m aor inteeraring SuppLier and Cudome6 using SRM and CRM
6. This wo*s asrhe majorenableroiSupplyChrin Vsnagenent
7. Bener daia managcmenr rhmugh turso*ed computc^ and d.tabases, whcre supplieA
an d cuslome^ can shaE imponan I data.

L Flilure rare ol rhh syseh is very high, be.ause of lack of knowledge and iop
managemcnr coinn nn en1. d aia inlccuracy. etc. Rememberlhat oniine dala updalins
is a frusr fo! $e system to run accumrel,
2, Hish capital investment hequned,

Somctlmes. cohpanies bBcome too orbitious to buy an expensile tutt ERP package $har
rh.y frqi nor ftquire.Ir is e$entiallhal the, fusjunifylhe modutcslhe] Equire.

Role ofERP in Supply Chrih

An inlegrated Supply Ch.in ola.ompany includcs rhe activirics olnol only rhc company
ilsell hut also inroacrions *irh manl supplieN, dhriburoE md cusrojners. Wirh.ur IT
solutions. n is conpLeieLl imposible to 6rlng all pla),es under lhe samc ufrbrella aDd
incrcase visibility oleach othe6' actlviries. Redl-rime supply chain nanageDent (scM) has
,lqz.. bee r.or.rdcrco.te l-.gdL . or.llo'g'n .".ron\ rn +c.da. (h:.n. aE ot. tu.."0d
inside the org.nizti6n. Advances in enlerpfte resource plannine (ERP). hoNever, have
nade real-time SCM trot only po$ible bur achievable. Il has aivsn rhe suppty chain
integration as qell as visibilnyolcach orhes activilies. Thus, ERP is consideEd as tlE main

Thc followiig section describes horv quanriries are calculsled. tead rines are offset
backlrd, go$ requircments are ideitified, ad orde6 arc planncd aid Eleased. Thh
complele proc.dure h .alled ',i/,RP Eylorr,,', Since thc lcad rines are off *l bicklard,
lhe lime-phased calculari.n F.cedure is called "Bockqard Schcduling , algoilhm.

A l,yDothetical BoNrPrcduct srruclure is rakcn into a.couni ro demonsEre the MRP synem.
The lead limes lir ranufacturinE or procurchcnr ae shoM by the sidcs ofrhe texr b.xes.
Numbr of compone s {quired io frake one higher level suba$efrbly is sho*n in ihe
Dt- M 4htai lAhtotHosia,lPE, ALTEL

sAP ('Systems. Applications and Pmducb in Dar! Procesins) h an ERP soilware,

developed by fio Gemd ompany SAP SE. This k a very ve&dle packase, havins the
capab iliry of h igh degree olflexible cuslomiurion. The soft*are h highly modtrtar in narure.
Thtri a compuycan buy onl, sel.cred nodules of SAP. notalMys rhe whole pekage.

SAP ERP was builr fDn hodules ompisinB thc fomer veEion ol popular SAP RA,
poduced by rhe Ceman corporarion SAP AC. The olde. SAP Ac (incorposrcd in
Cemany) changed iis leeal fom nom a ceman sock corporation (Aliienscscllschan. AG)
inro a Euopean company{sE).

As a result ol narketing ch gesandchangesinthei.dusiXneqvedionsofSAPharebeen

rclesed yeaft after )ea6. gowver. b6ic SAP IRP consiss ol selersl nodutes, inctuding
uliliries for markeiing ard sales. lield snicc, pioduct design and developme.r, pmdudion
1!enrorJ.ontrot. hutrar E.o
'nd
SAP R/l w6 thc non succe$tulproduct in SA?t hislory, doni.ating rhe market for ERP-
soiwac duing the 1990s and establishing lhe b6h for SAP\ cuftnr suc@ss in lhe ERP-
na&cr roday. ln irs basic siructure, SAP R/l is an integaied shndord softwaE coverins
almost aLl bBines purposes lhat miBht exkt in . compmy. The basic modulcs of SAP arc
given beloq allhough each nodule is tunhrdivided into sub-modules:
DL M,AhfufrAIh' EANN, IPE, BVET,

R/3 Core Business Processes

Basic 6re hoduls and lhen tunctions e. d aollowsl

r sales md disributidn (SD) Oder mlry, dcliveryrhipmenl, i.voicing, etc.

. Maredals M lsement (MM) Purchse requisilio. (?R), Purh6e onler (po),

. I,roduction planning (PP) SOP. Demand Mmasenen! MRp, capaciq/ plannins,

Production conlrol. erc.
. Qualit] Moasenent (QM) - Qualiry pldning od conrrol, Quali!, insp@lion, eic.
. Plst Maintenane (?M) - Prevorive d ooftctive mainrenaice plsmins, Etiability