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MATERIAL REQUIREMENT PLANNING(MRP)

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LEARNING OBJECTIVES

• Materials planning in assembly line process.

• Factors that influence the requirement of materials.

• What is MRP Process?

• Logic in material planning.

• Scheduling and material planning.

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Electric Rice Cooker

Lid (1) Steaming Body (1)

Main Body (1)

Hot Plate (1)

Chord (1)

Measuring Cup (1)

Knob (1)

Nut (1)

Pilot lamp

(cook) (1)

Switch Button

(1)

Switch Button

(1)

Lifting Support (2) Nos

Electric Wire (1)

Plug Connection to cooker

(1)

Plug Electric

Wire (1)

Hierarchical levels of components required for assembly of electric rice cooker

Level 0

Level 1

Screws (4) Nos.

Nut (4)

Nos.

Level 2

Level 3

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Case Study: Bill of materials for items at different levels of planning for electric rice cooker

Level Item Pcs required for 1 pc of the level

item

Total # of Pcs required for the quantity of item

at level 0

Level 0Electric rice

cooker   100 Pcs

Level 1

Lid 1 100

Steaming body 1 100

Main body 1 100

Hot Plate 1 100

Measuring cup 1 100

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Level 2

Nut 1 100

Knob 1 100

Pilot lamp (warm) 1 100

Pilot lamp (cook) 1 100

Switch button 1 100

Lifting support 2 200

Plug connection to cooker 1 100

Electric wire 1 100

Plug electric power 1 100

Level Item Pcs required for 1 pc of the level

item

Total # of Pcs required for the quantity of item at level

0

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Level Item Pcs required for 1 pc of

the level item

Total # of Pcs required for the quantity of item

at level 0

Level 3

Screw 4 800

Nut 4 800

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FACTORS INFLUENCING THE REQUIREMENT OF MATERIALS

Some of the factors that influence the requirement of materials and schedule of receipt are:– Production plans.

– Installed capacity of the plant.

– Market demand.

– Nature of the market.

– Political scenario.

– Organizational resources.

– Reliable delivery schedule from vendors.

– Reliability of records and store keeping.

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EFFECT OF PRODUCTION PLAN ON REQUIREMENT OF MATERIALS

• Material planning is an off-shoot of the production planning.

• A comprehensive list of materials required for producing the machine is prepared consisting of materials either made in the company or procured from outside suppliers.

• Material's requirement is dependent on the number of units of the machine or part to be manufactured.

• Once the number of units is decided, the quantity of each part required for producing one unit is multiplied by the number of units to arrive at the 'bill of materials'.

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EFFECT OF INSTALLED CAPACITY ON THE REQUIREMENT OF MATERIALS

• The number of units that can be produced depends upon the plant capacity.

• Material planning is thus related to the plant capacity.

• A production plan or the quantity of the finished product has to be with in the installed capacity of the plant.

• For example, in case of a small plant, if the maximum number of units that can be produced is limited to 1,000 units in a month, it can produce less than 1,000 units a month but not more.

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EFFECT OF MARKET DEMAND ON MATERIAL’S REQUIREMENT

• In today's context, it is the plan for producing the item depends upon the demand for the product in the market.

• If the market demand is limited, there is no point of producing the item more than the demand, even if, the installed capacity may prompt to produce more.

• If the production is more than the demand, the goods will remain in the inventory thus blocking the company's financial resources.

• The demand for the product may be of a continuous nature through out the year and may even continue for many years.

• In another case, the demand may be seasonal

• The demand may be linked with other extraneous factors such as fashion.

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EFFECT OF NATURE OF MARKET ON REQUIREMENT OF MATERIALS - 1

• Material planning is related to the nature of market.

• It is important to know if the prevailing market condition is of seller's market or buyer's market.

• In a seller's market, seller is in command of the market and can produce as much as possible without fear of over stocking of the finished goods.

• The production planner knows in advance the exact quantity of goods to be produced and thereby the requirements of the materials are matched with the production plan.

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EFFECT OF NATURE OF MARKET ON REQUIREMENT OF MATERIALS - 2

• In case of buyer’s market, the buyer decides the quantity of the purchases to be made from the supplier of his choice.

• He has the choice to select the seller and the number of sellers from whom to buy the items at his terms.

• The production plan of the supplier in such a case depends upon the market share the supplier is able to capture.

• Material planning in such a case is flexible and is tailored with the market demand.

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EFFECT OF POLITICAL SCENARIO ON REQUIREMENT OF MATERIALS

• War on Iraq by the United States and its Allies created great demand for various materials or services such as food items, arms and ammunitions, vehicles, spare parts, and other relief materials to cater to the requirements of the relief camps set up.

• Similarly, stoppage of production of oil in Iraq during the period of war increased the demand for oil in the international market, which resulted in sharp increase in oil prices.

• The increase in the price of oil affected all other commodities and increased their prices. The cost of bill of materials of all the industrial sectors has increased tremendously.

• Material planning takes important seat in these situations.

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EEFECT OF ORGANISATIONAL RESOURCES ON MATERIAL’S REQUIREMENT

• Material is one of the resources of the organization and is influenced by the other resources as well.

• If enough finance is not available, production plans can not be implemented even if there is demand for the product in the market.

• Similarly, if there is a shortage of manpower, production plans can not be executed.

• Material planning is therefore a complex subject and has to consider various aspects, which have a bearing on the requirement of materials.

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EFFECT OF TRANSPORTATION SYSTEM ON REQUIREMENT OF MATERIALS

• Material plans are linked to the transportation modes and the facilities.

• Long lead-time due to problems in transportation forces to plan for more safety stock of each item required.

• Similarly if the movement of finished goods is affected by transportation limitations, the production planner will have to change the material plans.

• Materials requirements is effected if there is a shortage of rail wagons or trucks or if port facilities are not suitable for loading and unloading cargos efficiently or limited number of vessels can only be handled at a time.

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EFFECT OF RELIABILITY OF DELIVERY SCHEDULE FROM VENDORS

• Delays in the delivery of items ordered may lead to stock-out situation may arise adversely affecting production plans.

• In case, the vendor is known for delaying the delivery of materials ordered, it will be preferable to ignore even if the offer of the vendor may be lowest. It would be wise to place order at the higher price to ensure timely delivery of the material.

• Reliability of delivery schedule should be insisted upon the vendors and any deviations should be looked upon with concern.

• A good vendor makes every effort to deliver the materials in time even it costs him more money.

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EFFECT OF RELIABILITY OF RECORDS AND STORE KEEPING

• At times, it is observed that physical stock of material is lower than the quantity in records. This can be a reason for stock-out.

• At times, the material is physically available in line with the quantity in stock, but the material is not found in the warehouse when needed as the same is not placed at the assigned place.

• To ensure that materials planning and production planning work in tandem, it is essential to ensure high reliability of records and correct store-keeping.

• It is for this reason that entries made by the store-keeper are verified by the supervisor.

• The physical locations of the item are also cross checked to avoid any problems.

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WHAT IS MATERIAL REQUIREMENT PLANNING (MRP) PROCESS?

• MRP process includes the planning and control of materials.

• Component parts are identified, aggregated and scheduled to be available in required quantity of finished product at the required time.

• Data inputs in the MRP system is obtained from:– Master Production Schedule

– Bill of Materials

– Inventory Status File

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MRP SYSTEM

• MRP systems involve all levels in the organization and are effective planning and control system.

• The frequency of running MRP programs is every week and the report takes care of 8 to 12 weeks horizon.

• It is very important that the data in MRP system has been entered correctly and is reliable.

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MATERIAL REQUIREMENT PLANNING (MRP) PROCESS - 1

• The starting point of material requirement planning is the market plan.

• Market plans are more difficult to plan as they are not only dependant on the present plans of the customers but also on their future plans and the likely health of the industry in coming days.

• Market plans are translated into production plans, which are linked to the resources plans.

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MATERIAL REQUIREMENT PLANNING (MRP) PROCESS - 2

• Production plans are further translated into Master Production Plans.

• Based on the Master Production Plan, the requirements for the materials are worked out.

• There after, the schedule for material supply, sources of material supply and transportation considerations are examined.

• The flow chart in the next slide presents the process of material planning.

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Market

Plan

Strategic

Plan

Financial

Plan

Production

Plan

Resource

Plan

Master Production

Plan

Plant Capacity Planning

Material Requirement

Planning

Materials

Plan

Bill of Materials

MATERIAL PLANNING FLOW CHART

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LOGIC IN MATERIAL PLANNING - 1

• Once the quantity of required material is established, logic starts examining a series of questions to ensure that the material is available when required.

• First step is to check the stock to see if sufficient material is available. If the answer is yes, the situation is fine and the planner thinks of the next item.

• If the answer is no, it then asks ‘Is sufficient quantity on order?’

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LOGIC IN MATERIAL PLANNING - 2

• There are two situations here:– If the answer is yes, it examines if the material is arriving on the

scheduled time.

– If the answer is no; then reschedule the delivery or re-plan order.

• If the material is arriving on the scheduled time, consider next item. But, if the answer is no, consider change in production schedule.

• If it is possible to change the production schedule, then adjust the production schedule. But if the answer is no to change the production schedule, then the material is to be arranged from alternate source.

• The material planning logic for each item is explained in the next slide.

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Revise Production Schedule

If change in Production schedule

possible?

Researchor

Re-plan order

If the material arriving as per schedule time?

Is sufficient quantity on

order?

Check stock, ifSufficient quantity

available?

Arrange material from alternate

source

Quantity of Material required

Yes, consider next item

Yes, consider next item

Yes

Yes

No

No

Yes

Logic Diagram for Material Requirement Planning (MRP)

No

No

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MASTER PRODUCTION SCHEDULE

MPS works out the quantity and timing of the requirement of end items.

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SCHEDULING AND MATERIAL PLANNING - 1

• Is essential to ensure the required quantity of material is available and that too much material is not in the stock.

• Excessive inventory in stock blocks money resulting in in-efficient utilization of the financial resources of the organization.

• A minimum strategic stock level to be maintained for facing any contingency, which may adversely affect the delivery of material.

• The contingencies may include:– Failure of the supplier to deliver the material as per agreed schedule

due to:• breakdown of some critical machinery in his plant,• power failure• strike in the factory,• shortage of raw-material, • non-availability of transport facilities or• public disturbance.

– Strike by the transporters may also cause problem in delivery of material in time.

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SCHEDULING AND MATERIAL PLANNING - 2

• Divide its total requirements of material among two or more suppliers

• The material planner is often faced with the questions:–How much to order?–How much to order on each supplier?–What should be the delivery schedule of the material

from each supplier? • At times, some supplier may not be able to deliver the

material, while on the other hand material may be received from two sources at the same time thus creating difficulties in handling, unloading, further transportation arrangement to the plant, if any; and shortage of storage space.

• Stock level of the material on hand, the level of the minimum strategic stock to be maintained and the available transport network are linked with the above questions. Planning for material therefore considers all these aspects.