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Group I Aditi Aurora Dhruv Jain Bhumi Kotak Faraz Naqvi Nayana Makhijani Niharika Sharma 03 10 16 18 32 35
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Introduction...........................................................................................4 History...................................................................................................4 MRP Objectives......................................................................................5 MRP System...........................................................................................5 MRP Benefits..........................................................................................5 The scope of MRP in manufacturing.......................................................9 Material Requirements Planning Use...................................................10 MRP II...................................................................................................11 JIT and MRP..........................................................................................12 Problems with MRP systems.................................................................13
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Critique of the MRP concept.................................................................14 Bibliography.........................................................................................15 Bibliography
Material Requirements Planning (MRP) is a software-based production planning and inventory control system used to manage manufacturing processes. Material requirements planning is a technique that uses the bill of material, inventory data and a master schedule to calculate requirements for material. MRP time phases material requirements based on setbacks defined by a combination of the bill of material structure and assembly lead times. The result of an MRP plan is a material plan for each item found in the bill of material structure which indicates the amount of new material required, the date on which it is required the new schedule dates for material that is currently on order. The user can create any number of simultaneous MRP plans using any number of master schedule for simulation purposes. In addition to demands from the master schedule, or in lieu of a master schedule, the MRP system can use time phased reorder points to generate demand over a user specified period of time. The MRP plan can be run for any number entities (which could be physically separated inventories) and can include distributor inventories, if the system has access to this type of information. The planning process will take account of engineering changes and exhaust types of revision change and if multiple distributor inventories are being managed, the MRP / DRP process will try to balance their inventories based on a series of parameters specified by the user. The implementation of the MRP plan can be done by an automatic reschedule for the work in process jobs and repetitive processes and an automatic creation of purchasing requisitions to implement the purchasing plan. The reschedule of existing purchasing orders is managed through a series of reports and queries but will not be done in an automatic manner.
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Prior to MRP and before computers dominated the industry, reorder-point/reorder-quantity (ROP/ROQ) type methods like EOQ had been used in manufacturing and inventory management. In the 1960s, Joseph Orlicky studied the TOYOTA Manufacturing Program and developed Material Requirements Planning (MRP), and Oliver Wight and George Plossl then developed MRP into manufacturing resource planning (MRP II). Orlicky's book is entitled The New Way of Life in Production and Inventory Management (1975). By 1975, MRP was implemented in 150 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).
• .Reduction in Inventory Cost: By providing the right quantity of material at right time to meet master production schedule, MRP tries to avoid the cost of excessive inventory. • Meeting Delivery Schedule: By minimizing the delays in materials procurement, production decision making, MRP helps avoid delays in production thereby meeting delivery schedules more consistently. • Improved Performance: By stream lining the production operations and minimizing the unplanned interruptions, MRP focuses on having all components available at right place in right quantity at right time.
MRP system has three major input components: • Master Production Schedule (MPS): MPS is designed to meet the market demand (both the firm orders and forecasted demand) in future in the taken planning horizon. MPS mainly depicts the detailed delivery schedule of the end products. However, orders for replacement components can also be included in it to make it more comprehensive. • Bill of Materials (BOM): BOM represents the product structure. It encompasses information about all sub components needed, their quantity, and their sequence of buildup in the end product. Information about the work centers performing buildup operations is also included in it.
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• Inventory Status File: Inventory status file keeps an up-to-date record of each item in the inventory. Information such as, item identification number, quantity on hand, safety stock level, quantity already allocated and the procurement lead time of each item is recorded in this file.
MRP calculates and maintains an optimum manufacturing plan based on master production schedules, sales forecasts, inventory status, open orders and bills of material. If properly implemented, it will reduce cash flow and increase profitability. MRP will provide you with the ability to be pro-active rather than re-active in the management of your inventory levels and material flow.
Implementing or improving Material Requirements Planning can provide the following benefits for your company: Reduced Inventory Levels Reduced Component Shortages Improved Shipping Performance Improved Customer Service Improved Productivity Simplified and Accurate Scheduling Reduced Purchasing Cost Improve Production Schedules Reduced Manufacturing Cost Reduced Lead Times Less Scrap and Rework Higher Production Quality
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Improved Communication Improved Plant Efficiency Reduced Freight Cost Reduction in Excess Inventory Reduced Overtime Improved Supply Schedules Improved Calculation of Material Requirements Improved Competitive Position .MRP uses the following elements to plan optimal inventory levels, purchases, production schedules and more: Master Production Schedule (MPS) Bill of Materials (BOM) Quantity on Hand (QOH) Part Lead Times Sales Order Quantities / Due Dates Scrap Rate Purchase Order Quantities / Due Dates Lot Sizing policies for All Parts Safety Stock Requirements
MRP will plan production so that the right materials are at the right place at the right time. MRP determines the latest possible time to product goods, buy materials and add manufacturing value. Proper Material Requirements Planning can keep cash in the firm and still fulfill all production demands. It is the single most powerful tool in guiding inventory planning, purchase management and production control. MRP is easy to operate and adds dramatically to profits.
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The scope of MRP in manufacturing
The basic function of MRP system includes inventory control, bill on material processing and elementary scheduling. MRP helps organization to maintain low inventory level. It is used to plan manufacturing, purchasing and delivering activities. "Manufacturing organizations, whatever their products, face the same daily practical problem that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required." Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below: • If a company purchases insufficient quantities of an item used in manufacturing, or the wrong item, they may be unable to meet contracts to supply products by the agreed date. • If a company purchases excessive quantities of an item, money is being wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all. However, some purchased items will have a minimum quantity that must be met, therefore, purchasing excess is necessary. • Beginning production of an order at the wrong time can cause customer deadlines to be missed. MRP is a tool to deal with these problems. It provides answers for several questions:
• What items are required? • How many are required? • When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to subassemblies, produced internally, that are components of more complex items. The data that must be considered include:
• The end item (or items) being created. This is sometimes called Independent Demand, or Level
"0" on BOM (Bill of materials).
• How much is required at a time. • When the quantities are required to meet demand. • Shelf life of stored materials.
• Inventory status records. Records of net materials available for use already in stock (on hand) and
materials on order from suppliers.
• Bills of materials. Details of the materials, components and sub-assemblies required to make each product.
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• Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs. Outputs There are two outputs and a variety of messages/reports:
• Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the
required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS). purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules. Messages and Reports:
• Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the
• Purchase orders. An order to a supplier to provide materials. • Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing
Material Requirements Planning Use
MRP is carried out using current and future sales figures. The planned and the exact requirement quantities trigger the net requirements calculation. The requirement elements of this calculation include sales orders, planned independent requirements, material reservations, dependent requirements received from BOM explosion, and so on. The net requirements calculation can give the exact requirements for each day. As you require exact requirement quantities for MRP, this means that you can work with particularly low safety stocks. Integration The forecast can be used in MRP to calculate the total requirement quantity or the unplanned requirement quantity. Process Flow
1. The system calculates net requirements for all the requirement quantities that are to be planned. The system thereby compares available warehouse stock or the scheduled receipts from Purchasing and Production with planned independent requirements, material reservations and incoming sales orders. In the case of a material shortage, that is, if the available stock (including firmed receipts) is smaller than the quantity required, the system creates procurement proposals. 2. The system calculates the quantity recorded in the procurement proposal according to the lot-sizing procedure that you specified in the material master. Various lot-sizing procedures are supported by the system. You can define a lot-sizing procedure for each individual
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material. 3. The procurement proposal is also scheduled which means that, for materials procured externally, the delivery and release dates are determined, and for materials produced inhouse, the production dates are calculated. 4. For materials produced in-house, the dependent requirements of the components are determined during the BOM explosion. For each component, the dependent requirements date is displaced by the in-house production time of the higher-level material. 5. Additional requirements (unplanned goods issues, excess consumption of components in production, and so on) can be covered by using the materials forecast within MRP. The historical values of unplanned requirements form the basis of the forecast. These requirements are then taken into account along with the exact requirement quantities.
MRP II is (essentially) MRP but with more added. Typically an MRP II package will include features such as cost information, management reports and easy "what-if" analysis. It may also include capacity requirements planning (essentially try and automatically include capacity restrictions in the planning process). To confuse things MRP II stands for manufacturing resources planning, signifying that we are concentrating upon the planning of the manufacturing resources (e.g. people, machines, storage), rather than limiting ourselves to the planning of the materials requirements. As an example of the use of MRP II we have the following:
This company looked at over 40 MRP II packages before choosing Control:Manufacturing from Cincom. The manufacturing operation at their Fernhurst plant is complex with as many as 4,500 finished products being processed from 13,500 different raw materials. Before the days of MRP II stock levels were high and forecasting was hit and miss. A £1 million MRP II installation has helped bring about some radical operational improvements since it was installed. A good example has been in inventory records and bill of materials accuracy. A BOM administrator was appointed to monitor data accuracy with a regular audit of a dozen BOM's. In addition, staff had to be trained to a very high detailed level, learning how to structure the BOM's to support customer service objectives, inventory objectives, order entry objectives and costing objectives. Data integrity increased from around 65% to 98% in just six months as a result.
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JIT and MRP
Just-in-time (JIT) and MRP are two different systems for controlling production. It is often said that:
• MRP = a 'Push' system • JIT = a 'Pull' system
Really this is an incorrect analysis - MRP is a system based on fulfilling predicted usage in a set time period. This can be seen in the example considered above. We never stocked out. JIT is a system based on actual usage - parts of the production system are "linked" together via the use of Kanban's as the system runs. It is this linkage that is the distinguishing difference between MRP and JIT - JIT is a dynamic linked system, MRP is not. This implies that JIT can be used when lead times are short, MRP is more appropriate when lead times are long. In addition MRP is much better suited for computerised implementation then JIT. Consider, for example, the large number of finished products (4,500) and raw materials (13,500) mentioned in the ICI example considered above. Do you relish the idea of controlling that factory via a JIT system, or would you prefer a computerised MRP system?
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Problems with MRP systems
The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master production schedule, then the outputted data will also be incorrect (GIGO: Garbage in, garbage out). Most vendors of this type of system recommend at least 99% data integrity for the system to give useful results. Another major problem with MRP systems is the requirement that the user specify how long it will take a factory to make a product from its component parts (assuming they are all available). Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory. A manufacturer may have factories in different cities or even countries. It is no good for an MRP system to say that we do not need to order some material because we have plenty thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory, and intercommunicate needs in order to enable each factory to redistribute components in order to serve the overall enterprise. This means that other systems in the enterprise need to work properly both before implementing an MRP system, and into the future. For example systems like variety reduction and engineering which makes sure that product comes out right first time (without defects) must be in place. Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions. Parts must be booked into and out of stores more regularly than the MRP calculations take place. Note, these other systems can well be manual systems, but must interface to the MRP. For example, a 'walk around' stock intake done just prior to the MRP calculations can be a practical solution for a small inventory (especially if it is an "open store"). The other major drawback of MRP is that takes no account of capacity in its calculations. This means it will give results that are impossible to implement due to manpower or machine or supplier capacity constraints. However this is largely dealt with by MRP II. Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials. In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the function of the company), ERP has been the next step.
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Critique of the MRP concept
Basically, the MRP concept is nothing else than the automation of order processing procedures that in earlier days have been done manually. The MRP concept has been criticized by many scientists as well as practitioners in a large number of publications. Its flaws are system-immanent and cannot be deleted by modern data base methods, user interfaces and faster computers. The major flaws to be criticized are:
1. The medium-term aggregated production planning which aims at the coordination of sales and operations planning is not supported. Usually the production plan is equated to the sales plan. With scarce resources, however, these both plans must differ. The production lot sizes are computed for each item in isolation without consideration of the interdependencies between predecessor and successor items in a multi-level BOM structure. The competition of items for resources is neglected, which leads to infeasible production plans. In addition, the cost-related interdependencies between a parent item and its components are not considered. In the MRP phase and in the Capacity Requirements Planning phase so-called "planned lead times" are used. These are stored as a resource-independent characteristic of an item in the production data base and are often not changed for years. The planned lead time includes estimates of transportation times and of waiting time due to scarcety of production resources. However, it is obvious that the waiting time for a resource depends on the workload of the resource. As the workload and, consequently, the bottleneck status of a resource changes over time, it does not make sense to store the waiting time (as part of the planned lead time) in a data base. The lead times are a result of the planning and not a given. All planning phase suffer from the severe flaw, that the scarce capacities of the resources are completely neglected in the planning. Only immediately before the start of the production operation on the job shop level the infeasibility of a production schedule is recognized. But at this point in time, it is too late. Delivery delays and superfluous inventory are the consequence.
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• • • • •
www.wikipedia.org www.osas.com www.inventorysolutions.org/def_mrp.htm people.brunel.ac.uk/~mastjjb/jeb/or/mrp.htm www.rockfordconsulting.com
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