Industrial Engineering

and Management
SCHOOL OF ECONOMICS AND MANAGEMENT
Capacity Planning: MRP, MRP II and ERP
Capacity planning is the process of determining the production capacity needed by an
organization to meet changing demands for its products. In the context of capacity
planning, the capacity is the maximum amount of work that an organization is capable of
doing in a given period of time. There are three basic steps of capacity planning:
determination of service level or production level requirements, analysis of the current
capacity of the organization and planning for the capacity required in future.
The required production level of product and services can be determined by finding the
workloads and identifying service level for each workload. The current capacity of the
systems can be analysed by measuring the production level and comparing with the
target or objectives, measuring the overall resource usage, measuring resource usage by
workload and identifying the components of response time. The future plan consists of
future processing requirements and plan for future system configuration and
specifications.
Materials Requirement Planning
The entire MRP can be divided into three parts: inputs to MRP, processes and outputs of MRP as follow
Steps of MRP
The MRP process involves the following steps:
• Determine the gross requirements of a finished product.
• Determine the net requirements and when orders will be released for fabrication or subassembly.
• Net requirements = Total requirements – Available inventory.
• Net requirements = (Gross requirements + Allocations) – (On hand) − Scheduled receipts.
Example
A firm manager receives an order of 500 staplers. The order is to be delivered at the end of 10th week from
now. He had 200 staplers in the inventory at the time of the order receipts. Using MRP, determine the
schedules for the orders to be released for the manufacturing and assemblies of the components so that the
500 staplers can be delivered on time.
The product components and its structure, the lead time to manufacture the components is shown as below:
Lead time
Solution: MRP schedules for the stapler
Solution: MRP schedules for the top
assembly of the stapler
Solution: MRP schedules for the rubber
pad (top assembly) of the stapler
Solution: MRP schedules for the spring steel
and tooth (top assembly) of the stapler
Solution: MRP schedules for the arm
(top assembly) of the stapler
Solution: MRP schedules for the middle
of the stapler
Solution: MRP schedules for the carriage
(middle assembly) of the stapler
Solution: MRP schedules for the magazine
cartridge (middle assembly) of the stapler
Solution: MRP schedules for the helical
spring (middle assembly) of the stapler
Solution: MRP schedules for the pin
(middle assembly) of the stapler
Solution: MRP schedules for the base
assembly of the stapler
Solution: MRP schedules for the rubber
pad (base assembly) of the stapler
Solution: MRP schedules for the strike
pad (base assembly) of the stapler
Solution: MRP schedules for the base of
the stapler
Benefits and Limitations of MRP
Benefits of MRP:
◦ 1. Increased customer service and satisfaction.
◦ 2. Improved utilization of facilities and personnel.
◦ 3. Better inventory planning and scheduling.
◦ 4. Faster response to market changes and shifts.
◦ 5. Reduced inventory levels without reducing customer services.

Limitations of MRP:
◦ 1. Delays in scheduled receipts.
◦ 2. Changes in planned order sizes because of capacity constraints.
◦ 3. Changes in gross requirements which dictate changes in lot sizes at sub-component levels.
◦ 4. Unavailability of raw materials for one sub-component may negate the need for a fellow subcomponent as both
must be ready for the parent production.
◦ 5. Utilization of the same parts at different levels, indicating the need to restructure the bill of materials.
MRP II
In the 1980s, MRP technology was expanded to create a new approach called manufacturing resource
planning, or MRP II.
‘The techniques developed in MRP to provide valid production schedules proved so successful that
organizations became aware that with valid schedules other resources could be better planned and
controlled. The areas of marketing, finance, and personnel were affected by the improvement in customer
delivery commitments, cash flow projections, and personnel management projections.’
Advantages of MRP II
1. Better control of inventories
2. Improved scheduling
3. Productive relationships with suppliers
4. Improved design control
5. Better quality and quality control
6. Reduced working capital for inventory
7. Improved cash flow through quicker deliveries
8. Accurate inventory records
9. Timely and valid cost and profitability information
Enterprise Resource Planning
ERP is a management tool used for planning and monitoring all of the resources of a manufacturing
company, including the functions of manufacturing, marketing, finance and engineering. ERP represents the
application of the latest IT to the MRP II system. This is recognized as being an effective management
system that has an excellent planning and scheduling capability offering significant gains in productivity,
dramatic increases in customer service, much higher inventory turns and greater reduction in material costs.
ERP systems as comprehensive package software solutions that seek to integrate the complete range of
business processes and functions in order to present a holistic view of the business from a single information
and IT architecture. Thus, ERP is seen as ‘an integrated, multi- dimensional system for all functions, based
on a business model for planning, control, and global (resource) optimization of the entire supply chain, by
using state if the art Information Systems/Information Technology (IS/IT) that supplies value added services
to all internal and external parties’.
Features of ERP
1. It provides multi-platform, multi-facility, multi-mode 7. It allows the automatic introduction of the latest
manufacturing, multi-currency, multi-lingual facilities. technologies like Electronic Fund Transfer (EFT),
Electronic Data Interchange (EDI), Internet, Video
2. It supports strategic, tactical and operational conferencing, E-commerce, etc.
planning and execution activities.
8. It eliminates the problems like material shortages,
3. It covers all functional areas like manufacturing,
selling and distribution, payables, receivables, productivity enhancements, customer service, cash
inventory, accounts, human resources, purchases, etc. management, inventory problems, quality problems,
on time delivery, etc.
4. It performs core activities and increases customer
service, thereby improving the corporate image. 9. It provides intelligent business tools like decision
support system, executive information system, data
5. It bridges the information gap across organizations. mining, etc.
6. It provides complete integration of systems across
the departments and companies under the same
management.