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Material Requirement Planning

Material Requirement Planning

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Published by: vinaycool12344150 on Jan 27, 2011
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Material Requirement Planning
Manufacturing resource planning is a method for the effective planning of amanufacturer's resources. MRP II is composed of several linked functions, such as business planning, sales and operations planning, capacity requirements planning, and allrelated support systems. The output from these MRP II functions can be integrated intofinancial reports, such as the business plan, purchase commitment report, shipping budget, and inventory projections. It has the capability of specifically addressingoperational planning and financial planning, and has simulation capability that allows itsusers to conduct sensitivity analyses (answering "what if" questions).The earliest form of manufacturing resource planning was known as materialrequirements planning (MRP). This system was vastly improved upon until it no longer resembled the original version. The newer version was so fundamentally different fromMRP, that a new term seemed appropriate. Oliver Wight coined the acronym MRP II for manufacturing resource planning.In order to best understand MRP II, one must have a basic understanding of MRP, so wewill begin with a look at MRP and then expand into MRP II.
Material requirements planning (MRP) is a computer-based, time-phased system for  planning and controlling the production and inventory function of a firm from the purchase of materials to the shipment of finished goods. All MRP systems are computer  based since the detail involved and the inherent burden of computation make manual use prohibitive. MRP is time phased because it not only determines what and how muchneeds to be made or purchased, but also when.A material requirement planning first appeared in the early 1970s and was popularized bya book of the same name by Joseph Orlicky. Its use was quickly heralded as the newmanufacturing panacea, but enthusiasm slowed somewhat when firms began to realizethe difficulty inherent in its implementation.The MRP system is composed of three primary modules, all of which function as a formof input. These are the master production schedule, the bill-of-materials, and theinventory status file. Each module serves a unique purpose that is inter-related with the purpose of the other modules, and produces several forms of usable output.
The master production schedule (MPS) is basically the production schedule for finishedgoods. This schedule is usually derived from current orders, plus any forecastrequirements. The MPS is divided into units of time called "buckets." While any timeframe may be utilized, usually days or weeks is appropriate. The MPS is also said to bethe aggregate plan "disaggregated." In other words, the plan for goods to be produced inaggregate is broken down into its individual units or finished goods.The MPS is initially developed from firm customer orders or from forecasts of demand before the MRP system begins to operate. The MPS is an input to the MRP system.Designed to meet market demand, the MPS identifies the quantity of each and product(end item) and when it needs to be produced during each future period in the production- planning horizon.
The MRP logic starts at the MPS, where it learns the schedule for finished goods (howmany and when). It takes this information to the BOM where it "explodes" the grossrequirements for all component parts. The MRP package then takes its knowledge of the
gross requirements for all components parts to the inventory status file, where the on-hand balances are listed. It then subtracts the on-hand balances and open orders from thegross requirements for components yielding the net requirements for each component.Of course, we now know not only how many components are needed but when they areneeded in order to complete the schedule for finished goods on time. By subtracting thelead time from the due date for each part, we now see when an order must be placed for each part so that it can be received in time to avoid a delay in the MPS. A manual versionof MRP for a part with requirements of 100 in period 3 and 250 in period 6 and with atwo-period lead time is shown in Figure 2. Notice that in order for the firm to meet demand on time (the MPS), they must place anorder for 25 in Period 1 and an order for 200 in Period 4. The reader should be aware thatthis is an overly simplified version of MRP, which does not include such relevant factorsas lot sizing and safety stock.
With MRP generating the material and schedule requirements necessary for meeting theappropriate sales and inventory demands, more than the obvious manufacturing resourcesfor supporting the MRP plan was found to be needed. Financial resources would have to be generated in varying amounts and timing. Also, the process would require varyingdegrees of marketing resource support. Production, marketing, and finance would beoperating without complete knowledge or even regard for what the other functional areasof the firm were doing.In the early 1980s MRP was expanded into a much broader approach. This new approach,manufacturing resource planning (MRP II), was an effort to expand the scope of  production resource planning and to involve other functional areas of the firm in the planning process, most notably marketing and finance, but also engineering, personnel,and purchasing. Incorporation of other functional areas allows all areas of the firm tofocus on a common set of goals. It also provides a means for generating a variety of reports to help managers in varying functions monitor the process and make necessaryadjustments as the work progresses.When finance knows which items will be purchased and when products will be delivered,it can accurately project the firm's cash flows. In addition, personnel can project hiring or layoff requirements, while marketing can keep track of up-to-the-minute changes indelivery times, lead times, and so on. Cost accounting information is gathered,engineering input is recorded, and a distribution requirement planning is performed.An MRP II system also has a simulation capability that enables its users to conductsensitivity analyses or evaluate a variety of possible scenarios. The MRP II system cansimulate a certain decision's impact throughout the organization, and predict its results interms of customer orders, due dates, or other "what if" outcomes. Being able to answer 

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