Material Requirement Planning
(MRP)
Material Requirement Planning
It is a production planning and inventory control system used to manage manufacturing processes.
Key Outputs of MRP are:
Calculate demand for component items
Determine requirements for subassemblies, components, and raw material
Determine when they are needed
Generate work orders and purchase order
Consider lead time
Material Requirement Planning (MRP)
The three objectives of MRP are:
Raw materials are available for production and products are available for delivery to customers.
Maintain lowest possible material and product level in stores.
Plan manufacturing activities, delivery schedules and purchasing activities.
MRP was proposed and developed by Joseph Orlicky in 1964.
The first company to use MRP was Black & Dercek in 1964.
When to use MRP
Dependent / Independent Demand?
Independent Demand
A
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent Demand
Independent demand is uncertain.
Dependent demand is certain.
Demand Characteristics
Independent demand
100 tables
Dependent demand
100 x 1 = 100 tabletops
100 x 4 = 400 table legs
Demand Characteristics for Finished Products and Their Components
Dependent Demand Versus Independent Demand
Independent demand is the demand originating outside the production system while dependent demand is the demand for components.
Dependent demand system (WIP, Raw Materials) – MRP systems.
Independent demand system (FGs, Spare parts) – Order point system
Dependent Demand Versus Independent Demand
Dimensions MRP Order Point System
1. Demand Dependent Independent
2. Ordering point Requirements Replenishment 3. Forecast Based on master
schedule Based on past demand
4. Control concept All items are
controlled ABC classification
5. Lot sizing Discrete EOQ
6. Objectives Meet manufacturing
requirements Meet customer requirements 7. Types of inventory WIP, RMs FGs, Spare parts 8. Demand pattern Predictable to some
extent Random
MRP Inputs MRP Processing MRP Outputs
Master schedule
Bill of materials
Inventory records
MRP computer programs
Changes Order releases Planned-order schedules
Exception reports
Planning reports Performance- control
reports
Inventory transaction Primary
reports
Secondary reports
MRP System
MRP Inputs 1:
Master Production Schedule
Drives MRP process with a schedule of finished products;
states which end items are to be produced, when these are needed, and in what quantities
Quantities may consist of a combination of customer orders & demand forecasts
Quantities represent what needs to be produced, not what
can be produced
Master Production Schedule (MPS)
Time-phased plan specifying how many and when the firm plans to build each end item
Aggregate Plan (Product Groups)
MPS
(Specific End Items)
MRP Inputs 2: Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
All BOMs should be accurate because error in BOMs means that the proper materials would not be ordered and the final product will not be finished and shifted on time
Product Structure Tree: Example 1
Chair
Seat
Legs (4) Cross bar
Side Rails (2)
Cross bar
Back Supports (3) Leg
Assembly
Back Assembly Level
0 1
2
Bicycle(1)
Handle Bars (1) Frame Assembly (1)
Wheels (2) Frame (1)
Product Structure Tree: Example 2
MRP Inputs 3: Inventory Records File
One of the three primary inputs of MRP
Includes information on the inventory status of each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
Evolution of MRP
MRP (material requirements planning) was the precursor to ERP
Primarily a production planning and control system
MRP evolved to MRP II (manufacturing resource planning)
ERP (Enterprise Resource Planning) and ERP II continue to extend the links through all business processes
Around 1980s, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as the unsuitability of the parameters fixed by the system, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning.
Manufacturing Resources Planning- MRP II
Manufacturing Resources Planning (MRP II)
Manufacturing resource planning (MRP II) is defined as a method for the effective planning of all resources of a manufacturing company.
Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions.
Goal: Plan and monitor all resources of a manufacturing firm: Manufacturing; marketing;
finance; engineering.
MRP is concerned primarily with manufacturing materials while MRP II is concerned with the coordination of the entire manufacturing process, including materials, finance, and human relations.
The goal of MRP II is to provide consistent data to all players in the manufacturing process as the product moves through the production line.
MRP versus MRP II
Enterprise Resource Planning (ERP) An Overview
Organizes and manages a company’s business processes by sharing information across functional areas
Connects with supply-chain and customer management applications
ERP in the nutshell Client server software
Integrates majority of business processes
Processes majority of transactions
Enterprise wide database
Enterprise Resource Planning (ERP)
Attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’
particular needs.
Organizes and manages a company’s business processes by sharing information across functional areas.
Standardized record-keeping permit information sharing and communication throughout the organization.
Enterprise Resource Planning (ERP)
ERP modules include
Basic MRP
Finance
Human resources
Supply chain management (SCM)
Customer relationship management (CRM)
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ERP Modules
[Organizational Data Flow]
Enterprise Resource Planning (ERP)
ERP systems have the potential to
Reduce transaction costs
Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT
systems and integration
Advantages of ERP Systems
1. Provides integration of the supply chain, production, and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaboration between business units and sites
5. Has an off-the-shelf software database 6. May provide a strategic advantage
Disadvantages of ERP Systems
1. Is very expensive to purchase and even more so to customize
2. Implementation may require major changes in the company and its processes
3. Is so complex that many companies cannot adjust to it
4. Involves an ongoing, possibly never completed, process for implementation
5. Expertise is limited with ongoing staffing problems
ERP in the 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 is to tie sales to buying,
inventory, logistics, and production
Just in Time (JIT) Manufacturing
The most popular definition of JIT philosophy is the elimination of all waste and continuous improvement of productivity.
Parts are produced just in time to meet manufacturing requirements.
The long term benefits of JIT includes reduced lot size, reduced set-up time, reduced lead time, better responsiveness, reduced cost, improved quality and enhanced productivity.
JIT
JIT uses a simple parts withdrawal system called
‘Kanban’ to pull parts from one workcenter to next.
A fixed number of containers are provided for each part required. When these containers are full no more parts are produced. This limits the inventory of each part.
Kanban was developed by Taiichi Ohno, at Toyota, as a system to improve and maintain a high level of production. Kanban is one method through which JIT is achieved.
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JIT versus MRP
JIT is suitable for imitative (repetitive) type of production whereas MRP is suitable for job shop production.
JIT is popularly known as pull system whereas MRP is termed as push system.
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