Assignment Questions

1. What is meant by Material Requirements Planning (MRP)

Material requirements planning (MRP) is a computer-based inventory management system

designed to improve productivity for businesses. It is used by Companies to estimate
quantities of raw materials and schedule their deliveries. Thus, it would improve the
productivity. Material requirements planning was the earliest of the integrated information
technology (IT) systems that aimed to improve productivity for businesses by using
computers and software technology.

MRP is being used in a variety of industries with a job-shop environment (meaning that a
number of products are made in batched using the same productive equipment). The list in
Exhibit 16.1 includes process industries, but note that the processes mentioned are confined
to job runs that alternate output product and do not include continuous processes such as
petroleum or steel.

The first MRP systems of inventory management evolved in the 1940s and 1950s. They used
mainframe computers to extrapolate information from a bill of materials for a specific
finished product into a production and purchasing plan. Soon, MRP systems expanded to
include information feedback loops so that production managers could change and update the
system inputs as needed.

The next generation of MRP, manufacturing resources planning (MRP II), also incorporated
marketing, finance, accounting, engineering, and human resources aspects into the planning
process. A related concept that expands on MRP is enterprise resources planning (ERP),
which uses computer technology to link the various functional areas across an entire business
enterprise. As data analysis and technology became more sophisticated, more comprehensive
systems were developed to integrate MRP with other aspects of the manufacturing process.

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2. How Material Requirements Planning (MRP) Works

It works backward from a production plan for finished goods to develop inventory
requirements for components and raw materials. The MRP process includes the assurance
that materials and components will be available when needed, minimized inventory levels,
reduced customer lead times, optimized inventory management, and improved overall
customer satisfaction. However, the setback occurs as the MRP process includes a heavy
reliance on input data accuracy (garbage in, garbage out), the high cost to implement, and a
lack of flexibility when it comes to the production schedule.

The Material Requirements Planning (MRP) Works as designed to answer three questions:
(i) What is needed?
List of items or materials required for certain project or business.
(ii) How much is needed?
The required quantities, amount or volume.
(iii) When is it needed?
The time frame the items are needed or be ready at site or location.

As mentioned earlier, MRP works backward from a production plan for finished goods,
which is converted into a list of requirements for the subassemblies, component parts, and
raw materials needed to produce the final product within the established schedule.

In other words, it's basically a system for trying to figure out the materials and items needed
to manufacture a given product. MRP helps manufacturers get a grasp of inventory
requirements while balancing both supply and demand. By parsing raw data—like bills of
lading and shelf life of stored materials—this technology provides meaningful information to
managers about their need for labor and supplies, which can help companies improve their
production efficiency.

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3. Steps of Material Requirements Planning (MRP)

The MRP process can be broken down into four basic steps:

Step 1- Estimating demand and the materials required to meet it.

The initial step of the MRP process is determining customer demand and the requirements to
meet it. Utilizing the bill of materials—which is simply a list of raw materials, assemblies,
and components needed to manufacture an end product—MRP breaks down demand into
specific raw materials and components.

Step 2 - Check demand against inventory and allocate resources.

This step involves checking demand against what you already have in inventory. The MRP
then distributes resources accordingly. In other words, the MRP allocates inventory into the
exact areas it is needed.

Step 3 - Production scheduling.

The next step in the process is simply to calculate the amount of time and labor required to
complete manufacturing. A deadline is also provided.

Step 4 - Monitor the process.

The final step of the process is simply to monitor it for any issues. The MRP can
automatically alert managers for any delays and even suggest contingency plans in order to
meet build deadlines.

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4. Material Requirements Planning (MRP) in Manufacturing

A critical input for material requirements planning is a bill of materials (BOM)—an extensive
list of raw materials, components, and assemblies required to construct, manufacture or repair
a product or service.

BOM specifies the relationship between the end product (independent demand) and the
components (dependent demand). Independent demand originates outside the plant or
production system, and dependent demand refers to components. Companies need to manage
the types and quantities of materials they purchase strategically; plan which products to
manufacture and in what quantities; and ensure that they are able to meet current and future
customer demand—all at the lowest possible cost.

MRP helps companies maintain low inventory levels. Making a bad decision in any area of
the production cycle will cause the company to lose money. By maintaining appropriate
levels of inventory, manufacturers can better align their production with rising and falling
demand.

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5. Types of Data Considered by Material Requirements Planning (MRP)

The data that must be considered in an MRP scheme include:

 Name of the final product that's being created: This is sometimes called independent
demand or Level "0" on BOM.
 What and when info: How much quantity is required to meet demand? When is it
needed?
 The shelf life of stored materials.
 Inventory status records: Records of net materials available for use that are already in
stock (on hand) and materials on order from suppliers.
 Bills of materials: Details of the materials, components, and sub-assemblies required
to make each product.
 Planning data: This includes all the restraints and directions to produce such items as
routing, labor and machine standards, quality and testing standards, lot sizing
techniques, and other inputs.

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6. Advantages and Disadvantages of Material Requirements Planning (MRP)

There are several advantages to the Material Requirement Planning (MRP) process:

i. Assurance that materials and components will be available when needed

ii. Minimized inventory levels and costs associated
iii. Optimized inventory management
iv. Reduced customer lead times
v. Increased manufacturing efficiency
vi. Increased labor productivity
vii. Increased overall customer satisfaction

There are also disadvantages to the Material Requirement Planning (MRP) process:

i. Heavy reliance on input data accuracy (garbage in, garbage out)

ii. MRP systems can often be difficult and expensive to implement
iii. Lack of flexibility when it comes to the production schedule
iv. Introduces the temptation to hold more inventory than needed

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7. Objectives of Material Requirement Planning (MRP)

MRP’s objectives listed as below.

i. Make sure raw materials are available for production when required
ii. Maintain the lowest possible material and component levels
iii. Plan and schedule manufacturing activities

Material Requirement Planning (MRP) benefits a business in the following ways:

i. Ensures that materials and components are available when they're needed
ii. Inventory levels are optimized and associated costs are minimized
iii. Manufacturing efficiency is improved significantly
iv. Customer satisfaction is increased due to reduced lead times

The Inputs of Material Requirement Planning (MRP)

The three basic inputs of an MRP system are the master production schedule (MPS),
inventory status file (ISF), and bill of materials (BOM). The MPS is simply the quantity and
timing of all end goods to be produced over a specific time period. MPS is estimated through
customer orders and demand forecasts. The ISF contains important real-time information on a
company's inventory. It lets managers know what they have on hand, where that inventory is,
and the overall status of the inventory. The BOM is a detailed list of raw materials,
components, and assemblies required to construct, manufacture or repair a product or service.