Material requirement planning (mrp)

Material Requirement
Planning (MRP-1)

Course Outline
• Introduction to planning
* Capacity * Aggregate * Master
Production schedule and * Material
requirement planning
• MRP
* Objectives, * functions, * basic terminologies, * MRP
inputs, *MRP working, * MRP outputs, *benefits, and *drawbacks
• Conclusion

Introduction
• In organizations, planning is a management process,
concerned with defining goals for company's future direction
in achieving defined targets.
• Production planning is the planning of production and
manufacturing modules in a company or industry.
• It utilizes the resource allocation activities such as employees,
materials and production capacity, in order to serve different
customers.
• Based on time horizons, planning can be made in three ways,
* Capacity Planning (Long term planning)
* Aggregate Planning (Intermediate term planning)
* Master Production Scheduling (MPS) & Material
requirement planning (short term planning)

Capacity Planning
• First step before setting up any organization deciding to
produce new product or existing product or altogether.
• It includes,
* Planning for plant location, machineries and human
resources.
* Strategies for facility expansion, facility alterations & major
subcontract plans.
• These decisions normally taken by top management.
• Decisions can be made based on analysing economic,
technological and other competitive variables, viz., Break even
analysis and forecasting etc.,

Aggregate Planning
• It involves planning the best quantity to produce during time
periods/process of determining output levels in the
intermediate range horizon [next 6 to 18 months].
• Usually planning made based on demand forecasting.
• It includes,
* Employment plan
* Major machinery and process plan
* Machinery and utility plan
* Aggregate inventory plans
• These planning's are also known as tactical planning.
• It facilitates full loaded facilities and minimizes overloading
and under-loading
• Enhances amount of resources in times of scarce production

Market
environment Resource base &
Technology
Forecast &
customer order
Capacity (facilities,
material, labour
and capital)
Aggregate
production plan
Capacity
requirements
Master production
schedule (MPS)
Material
requirements
Long range (1-15 years) major
capacity additions, product and
process decisions.
Intermediate range (6-18
months) workforce, overtime
plans, inventory &
subcontracting levels, minor
capacity changes.
Short range (up to 6 months)
detailed scheduling,
routings, alternate work
centres, overtime etc.,
Fig: Flow chart of Aggregate plan and Master Production Schedule

Master Production Schedule (MPS)
• MPS sets the quantity of each end item (finished product) to
be completed in each time period of the short range planning
horizon.
• It developed by reviewing market forecasts, customer orders,
inventory levels, facility loading and capacity information
regularly.
• Main objective of MPS is to schedule end items to be
completed
• Functions of MPS;
* Dis-aggregating aggregate plans into specific end items.
* Evaluating alternative schedules.
* Generating material requirements
* Generating capacity requirements.
* Utilizing capacity effectively

Example
Week
Product
September
1 2 3 4
Product P6 70 100
Product P8 40 80 60
MPS for products P6 & P8
Week wise requirement of both P6 & P8 to generate end products could be;
First week: Product P8= 40 units
Second week: Product P6=70 units
Third week: Product P8= 80 units
Fourth week: Product P6= 100 units & Product P8= 60 units.

Material requirements planning
• For a manufacturing company to produce end items to meet
demands, the availability of sufficient production capacity must
be coordinated with,
* the availability of raw materials and
* purchased items from which, the end items to be produced
• There is a need to manage the availability of dependent demand
items.
• The technique to manage dependent demand items required to
produce end products as per the production schedule is known as
MRP.
• MRP is the scientific technique for planning the quantity to
be ordered, usage of materials at various levels of production
& for monitoring the stocks during these transactions.
• MRP includes activities of both inventory control and scheduling
techniques.

Objectives of MRP
• To improve customer service by meeting delivery schedule
promised & shortening delivery lead times.
• To reduce inventory costs by reducing inventory levels.
• To improve plant operating efficiency by better use of
production resources.

Functions of MRP
• Based on a Master production schedule, a material
requirements planning system:
* Creates schedules identifying the specific parts and materials
required to produce end items.
* Determines exact unit numbers needed.
* Determines the dates when orders for those materials should
be released, based on lead times.

Basic terminologies associated with MRP
• Independent demand item: It is a finished product demand,
whose demand occurs separately of demand for any other
item.
• Dependent demand item: Demand for an item that can be
linked to the demand for other item.
• Available inventory: Materials that are held in inventory or
which are on order, but are not either safety stock or allocated
to other uses.
• Allocated inventory: Materials that are held in inventory or
on order but which have been allocated to specific production
orders in the future.
• On hand inventory: The quantity of material, physically held
in inventory at a point of time. It may include safety stock and
allocated inventory except material on order.

Basic terminologies associated with MRP
••

• Bill of materials (BOM) file: It provides a list indicating the
all raw materials, parts, sub assemblies, and major assemblies
in units that go into an end product.
* It gives details of the build up of a product.
* It may also be called as indented parts list
* BOM file can be revised every time if there is a change in
product design or specification.
• A bill of materials may contain the following information:
product code, description of the product; mechanical
characteristics of the product; vendor's name; size,
length, weight or other required physical characteristic of
the product; test results (shrinkage, lead, etc);
estimated/actual yield (allocation, quantity used); and
further processing required (sponging, dyeing, enzyme
bath, etc).

BOM
Product P8
Subassembly
1
Subassembly
2
X Y
Y
ZY

MRP Inputs
Customer
order Sales forecast
Master
production
schedule (MPS)
Engineering
changes
Bill of
Materials
(BOM)
Inventory
status file
MRP
System
Service parts
requirements

Inventory status file
• It provides a computerized record of each material physically
held in the system.
• There will be only one inventory status for individual material,
even if it is used at different levels of production or in different
end products.
• The file indicates,
* Material code
* Material name
* Inventory-on-hand (physically available)
* Inventory on order (ordered but yet to arrive)
* Customer order for item
• The file also contains information such as
* Lot size *Lead times * Safety stock level *Scrap-rate

Lead time in MRP
• In MRP, lead times are used to determine starting dates for
assembling final products and subassemblies, for producing
component parts & for ordering raw materials.
• Types:
* Ordering lead time: Time gap b/w start of purchasing process
to receipt from suppliers.
* Manufacturing lead time: Processing of part through the
machines specified on route sheet.
Order raw
material
Start of
production Place order for
subassembly 1
Subassembly 1
needed
Final
Product
1 2 3 4 5 6 7
offsetting

Independent and Dependent demand
A
B (4)
D (2) E (1)
C (2)
D (3) F (2)
Independent
Demand (end
item)
Dependent
demand
(components)

Independent v/s Dependent demand
• Independent Demand:
 Demand unrelated to demand of other products (ex: end
products/finished goods).
 Usually forecast.
 Conventional inventory control (EOQ) applicable.
• Dependent Demand:
 Demand directly related to demand of some other product (ex:
components, raw materials, subassemblies)
 Requirements derived from delivery schedule of end items.
 MRP is the appropriate tool for planning & control of
manufacture inventories.

Working of MRP
• Bucketing: At what time and in what quantity a product is
needed. MRP starts with consolidating period requirements for
different end products. These time periods are known as
“buckets”.
• Add service (spare) parts, which are not included in MPS.
• Part explosion- Each item exploded (divided) into constituent
materials.
• Offsetting: Displacing requirement by a product equal to the
lead time of the product.
• Aggregation: Find gross requirement for each component or
raw material.

• Netting: Involves modification of aggregated (gross) requirement.
+ Scheduled receipts]
• Procurement schedule: the requirement is now advanced by a lead-time for final assembly. Pertains to production process lead-time.
To expect the MRP run to schedule the procurement proposals correctly, we have to maintain the following in the master data's properly:
a) In-house production times (for in house manufacturing, maintained in the material master MRP 2 view as lot independent and as lot dependent in the work scheduling view),
b) Planned delivery times (for external procurement, maintained in the material master),
c) Interoperation times (optional for in house production, maintained in the material master or Task lists such as routing or recipes),
d) Planned goods receipt times (optional for external and internal procurement)
e) Set up times and tear down times (optional for in house production, maintained in the material master Work Scheduling view or in the task list such as routing or recipes)
• Lot sizing: this is used to consolidate the requirements in pre-specified lot sizes, so the economic order quantity may be ordered.
•

MRP Outputs
MRP
Order release
requirements (orders
to be released now)
Order Rescheduling
(expedite, de-expedite,
open orders)
Planned orders
(future)

• Order releases: Based on MPS report, inventory status and product
structure, MRP releases orders to procure items in tune with the due
date requirements at every level.
*Purchase orders (PO) sent to purchase department to
procure items from outside.
*Shop orders are released to produce/procure items from in
house workshops.
• Order rescheduling: Due to arise of alterations in production
schedules, few orders need to be expedite/few more get cancelled. MRP
package accommodate all such changes and gives reschedule for all
further orders.
• Planned orders release: The quantity of an item that is planned to be
ordered and planned time period for releasing this order, so that, the
item will be received when needed.

Benefits of MRP
• Understanding the effect of changes in future periods.
• Triggers a process to improve BOM, to guarantee reliable
inventory records and better management.
• Improved customer service.
• Reduction in lead time.
• Increase in productivity.
• Reduce purchasing cost.
• Improve production and supply schedules.
• Reduce manufacturing cost.
• Less scrap and rework.
• Higher production quality.

Drawbacks of MRP
• Incorrectness in suppliers’ lead time: MRP depends heavily on
correctness of lead time data.
• Incorrectness in inventory data: miscounting, unaccounted
scrap, items lost in transit etc.,
• Inaccurate manufacturing lead time: change in customers’
demand, change in workload of factory.
• Inaccuracies in BOM structure: change in design, component
substitution without recording.

Conclusion
• MRP is a…..
* Computerized inventory control
* Production planning system
that……..
* Schedules component items as needed
Which will……
* Track inventory and
* Help a company in many other aspects of business

Material requirement planning (mrp)

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