MATERIAL

REQUIRMENT
PLANNING ( MRP )
Abhishek
Archana
Bipin
Ram
Rajendra
Sunanda
 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

R e d u ctio n in In v e n to ry C o st: 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
 STRUCTURE OF THE MRP
SYSTEM
Data Files O / p reports
Master
BOM Production
(Bill-of-Material) Schedule MRP by period report

Lead Times
MRP by date report
(Item Master File) MRP
Program
s Planned orders report
Inventory Data

Purchase requirements

Purchasing data
Exception reports

7
 B IL L S O F M A T E R IA L S
• 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…)

P h a n to m b ills o f m a te ria l- B ills o f m a te ria lfo r

co m p o n e n ts, u su a lly a sse m b lie s, th a t exist o n ly
te m p o ra rily ; th e y a re n e ve r in ve n to rie d .

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

qStatic
• Economic Order Quantity (EOQ)
•
qDynamic
• Lot-For-Lot (L4L)
 LOT SIZING – L4L TECHNIQUE

Lo t sizin g te ch n iq u e th a t g e n e ra te s exa ctly w h a t is

needed
N o sa fe ty sto ck o r a n ticip a tio n o f fu rth e r o rd e rs
W o rks m o st e fficie n tly w h e n
Fre q u e n t o rd e rs a re e co n o m ica l ( lo w se t- u p o r
o rd e rin g co sts)
JIT in ve n to ry te ch n iq u e s h a s b e e n
im p le m e n te d
•
 LOT SIZING TECHNIQUE
Consider the given lot sizing problem, the net requirement are given
for 8 weeks

Week Week 2 Week Week Week Week Week Week

1
50 60 3
70 4
60 5
95 6
75 7
60 8
55

Cost per item Rs 10

Order/Setup cost Rs 47
Inventory carrying cost/week 0.5 %
 LOT SIZING – L4L TECHNIQUE
Lot-for-Lot Run Size for an MRP schedule
Week Net Requirement Production Ending Holding Cost Set up Cost Total Cost
Quantity Quantity

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 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
EOQ Run Size for an MRP schedule
Week Net Requirement Production Ending Holding Cost Set up Cost Total Cost
Quantity Inventory

1 50 351 301 Rs Rs 47 Rs
15.05 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
∑=525
 LO T S IZ IN G – E O Q T E C H N IQ U E

Annual demand = D = 525 x 52 = 3412.5 units

• 8
Annual holding cost =H= 0.5%xRs 10x52 weeks=2.60 units

Setup cost = S = Rs 47

EOQ = √2DS = 351 units
• √H
 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 scheduling

MRP 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
§ A n a p p ro a ch to u n d e rsta n d h o w m u ch w o rk ca n b e
p ro d u ce d in a ce rta in p e rio d o f tim e , ta kin g
lim ita tio n s o n d iffe re n t re so u rce s in to
co n sid e ra tio n .
•

§ It provides the precise scheduling needed for rapid

material movement.
•

§ The allocation of resources over time to perform

a set of tasks.
•

§ T h e g o a l o f fin ite ca p a city sch e d u lin g is to

e n su re th a t w o rk p ro ce e d s a t a n e ve n a n d
e fficie n t p a ce th ro u g h o u t th e p la n t
 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) In ve n to ry is m o ve d th ro u g h th e p la n t o n a JIT
b a sis.
• 4 ) A fte r p ro d u cts a re m a n u fa ctu re d th e y a re
m o ve d to th e in ve n to ry. R e ce ip t o f th e se p ro d u cts
in to in ve n to ry re d u ce s th e q u a n titie s re q u ire d fo r
su b se q u e n t p la n n e d o rd e rs in th e M R P syste m .
• 5 ) B a ck Flu sh syste m is u se d to re d u ce in ve n to ry
b a la n ce s. B a ck Flu sh in g u se s th e b illo f m a te ria lto
d e d u ct co m p o n e n t q u a n titie s fro m in ve n to ry a s
e a ch u n it is co m p le te d .
•

• 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 system
Kanban 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.
•
E X T E N S IO N S O F M R P

• 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

No

Master production scheduling

Material requirements planning
Capacity requirements planning
Production planning
Realisitic

Yes
Execute
capacity
Plans

Execute material plans

 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 tentative Use MRP to
master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master
resource production
requirements schedule
No
Can
Is shop capacity be
capacity No changed to meet
adequate? requirements

Yes Yes

Firm up a portion Change

of the MPS capacity
 MRP II
Manufacturing 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 SERVICES
C a n b e u se d w h e n d e m a n d fo r se rvice ite m is
d ire ctly re la te d to o r d e rive d fro m d e m a n d fo r
o th e r se rvice s
§ R e sta u ra n t – ro lls re q u ire d fo r e a ch m e a l
§ H o sp ita ls – im p le m e n ts fo r su rg e ry
•

• 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 services
Postal services
Retail
Banking
Healthcare
Higher education
Engineering
Logistical services
Real 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 ERP
Provides integration of supply chain,
production and administrative process.
Provides strategic advantage over competitors
Increases communication and collaboration
among the business units
Can incorporate, improved, reengineered,
“best processes”
 DISADVANTAGES OF ERP
Expensive to purchase and costly to customize
Complex for the companies to adjust
Involves 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.
 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.
•
 QUIZ
• 1)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