7 1 MRP Process

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Materials Planning

Material requirement planning (MRP-I) is a

logical approach for determining raw materials,assemblies, sub-assemblies and parts needed toproduce each end product on a short-term basis.

It also provides the schedule, specifying wheneach of these should be ordered or produced.

It deals with dependent demand situations.

Starting from computing materials required andcreating a schedule, it has evolved intomanufacturing resource planning (MRP-II), andnow into enterprise resource planning (ERP).


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MRP-I

MRP-I determines how much of each item is

needed and when to produce a specified numberof end products in a specified time period byevaluating the master production schedule (MPS),and bill of materials (BOM) and inventory record

file.

It is based on dependent demand. Dependentdemand is caused by the demand for higher level

of items (end products). For example, tyres, wheelsand engines are dependent items of automobile.


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Basic purposes of MRP System

To determine requirements of parts materials

needed for end products

To create implementable schedules for receivingparts/materials

To do capacity planning To control inventory

To satisfy customer at optimum cost

RIGHT MATERIAL TO RIGHT POINT AT RIGHT TIME


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Role of Materials Management in

a Business As a basic function of the firm

As a manager of outside manufacturing:Materials manager is answerable for purchase of

items manufactured outside as productionmanager is answerable for parts produced in-house. Hence, materials manager is rightly calledmanager of outside manufacturing.

As a controller of cost: Major costs withmaterials include ordering or set-up costs,carrying costs, logistics costs (transportation andwarehousing) and shortages or surpluses costs,besides the cost of purchased items.


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Philosophy in MRP

MRP adopts the philosophy of expediting andde-expediting.

A lot of effort is put to expedite the supply whenit is behind the schedule (schedule receipt is past

due) or when the requirement shifts to an earlierdate.

It tries to de-expedite the supply if material is

needed later than the schedule date (against thetraditional approach where it was not a concernand it results in piling up of inventory).


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Application areas

Most valuable for companies involved inassembly operations

Assemble to stock/order: High benefits, for

example, automobiles, watches, tools,appliances.

Manufacture to order: High benefits; e.g.,turbine, heavy machine tools.

Process industries: Medium benefit; e.g., paper,chemicals, paint.

Fabricate to stock/order: Low benefit; e.g.,piston rings, electrical switches, bearings, gears.


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Complexities associated with MRP

Number of parts/sub-assemblies that go into an end product may run

into several thousands.

Inventory of a part can exist in the form of raw material, work in

process (WIP) and finished goods. Keeping track of these make the

problem complex.

Even with uniform demand of end products, requirement of parts at

different points of time becomes non-uniform. This could be due toseveral reasons like, batching of production/ procurement, same part

going into different sub-assemblies etc. (see the example in next slide)

The firm as well as suppliers have capacity constraints.

Changes in customer orders, lead times, machine breakdowns,quality rejections and so forth bring uncertainty in the problem.

------- in the presence of the above factors, an optimal solution to the complexproblem is extremely difficult. One can hope for a feasible solution at

reasonable cost.


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An example of non-uniform requirements

subassemblies, X (Each of assemblies A, B, C

requires one unit of subassembly x.)

Week->

1 2 3 4 5 6 7 8 9 10

D(A) 20 20 20 20 20 20 20 20 20 20

P(A) 60 - - 60 - - 60 - - 60

D (B) 10 10 10 10 10 10 10 10 10 10

P(B) 40 - - - 40 - - - 40 -

D(C) 5 5 5 5 5 5 5 5 5 5

P(C) 15 - - 15 - - 15 - - 15

R(X) 115 - - 75 40 - 75 - 40 75


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MRP System

Master Production Schedule(MPS)

Bill of Materials(BOM)

Material Planning(MRP Computer

Programme)

Secondary Report:Exception reportPlanning reportsReports for performance control

Primary Report:Schedule of planned ordersSchedule of order releaseChanges in schedule

Inventory Record File


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MRP System (cont.)

Three major inputs:

(i) Master Production Schedule (MPS)

(ii) Bill of Materials (BOM)(iii) Inventory Record File


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Master Production Schedule MPS shows the number of items to be

produced/received in specific period.

Aggregate production planning (APP)specifies the optimal combination of product

rates (for product groups, parts and sub-assemblies), work force level and inventorylevel for intermediate range (a year). It uses avariety of tools and techniques and forms the

basis of MPS. MPS decides what we are going to make in

terms of specific product configuration onspecific quantities and on specific dates.


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MPS (cont.)

Generally, MPS deals with the end product.

However, it may include major sub-assemblies orcomponents, in case the product is large or quiteexpensive.

All manufacturing systems have resourceconstraints such as inventory, material, capacity(equipment/labor), suppliers, money and storage.

Also, there exist conflicting priorities among

functional groups. Some of these are illustrated inthe next page.


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MPS (cont.)

Some of the conflicting goals are:

Sales: Meet the customers promised date.

Finance: Minimize inventory.

Management: Maximize productivity andcustomer service, minimize resource needs.

Manufacturing: Have level schedule andminimize set-ups.

The last two factors pose a big challenge to preparethe master schedule. It takes many iterations tocome to an acceptable plan.


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MPS (cont.): Aggregate plan

and MPS: exampleAggregat

ePlanningfor cars

Month 1 2

Car 10000 9000

MPS fordiff.

Carmodels

Week 1 2 3 4 5 6 7 8

Model-

1

2000 4000 2000 1000

Model-2

1000 1000 1000 1000

Model-3

2000 2000 2000


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MPS (cont.) conflicting

facors Time fences: Change in customer demand

disrupts the planning process. This calls forexpediting and de-expediting.


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Bill of Materials (BOM)

BOM shows the list of materials, parts, andsubassembly needed to make the endproduct and the sequence in which the

product is created. It is also called the product structure file or

product structure tree because it shows howa product is put together.

It identifies each item and the quantity usedto make higher order item of which it is apart.


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Product structure tree

(PST)A

B (2) C (3)

D(2) E (4) F(2) G(4)

E (1) F (3)


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BOM (cont.)

BOM files often list parts using indentation.There are two systems of indentation multi-level and single level indentation

Multi-level indentation identifies each item andthe manner in which it is assembled. Eachindentation signifies the lower order items orcomponents of the higher order item.

In single level indentation, listing is doneassembly-wise (item and components).Components are separated from the item usingindentation.


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Multi-level indentation

A

B(2)

D(2)

E(1)

F(3)

E(4)

C(3)

F(2)

G(4)


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Single level indentation

A

B(2)C(3)

B

D(2)

E(4)C

F(2)

G(4)

D

E (1)

F(3)


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Modular Bill of Material

It is the term used for item that is producedand stocked as a subassembly (or, module).

Many end items that are large expensive arebetter scheduled and controlled as modules.


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A Planning Bill of Material

A planning bill of materials includes itemswith fractional options. A planning bill canspecify, for example, 0.4 of a part. It meansthat 40% of the units produced contain thatpart and 60% do not.

l di


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Low Level Coding

Identical parts may occur at different levels in different sub-

assemblies for each end items. Here, identical parts are placed at same level.

It facilitates the computation of the parts.

A

B(2) C(3)

E(4)

G(4)

F(2)

D(2)

F(3)E(1)


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Inventory Record File (IRF)

A variety of information is contained in IRF.

These include:1. DATA RELATED ITEM:

Part number

Description Lead time

Standard cost

Safety stock

Order quantity

Last years usage


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IRF ( cont.)

2. INVENTORY DATA:

Gross requirement

Scheduled receipt on hand Planned order releases

The inventory status file is kept up to date byposting inventory transaction as they occur.


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Output Reports:

1. PRIMARY REPORTS:

Schedule of planned orders, showing

quantity and time of orders Schedule of order release for executing the

planned orders

Changes in schedule, which include revisionin due dates, order quantity, cancellation oforders etc.


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Output Reports:

2. SECONDARY REPORTS:

Performance control reports indicate

deviations from plans in respect to quantity,due dates, stock outs, quality, costs, etc.

Planning reports are connected withforecasting requirements and inventory.

Exception reports present seriousdiscrepancies, like late or over due orders,excessive scrap and non-existent parts.

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7 1 MRP Process