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Materials

Requir
ement
Pl
anning

Group I

Aditi Aurora 03

Dhruv Jain 10

Bhumi Kotak 16

Faraz Naqvi 18

Nayana Makhijani 32

Niharika Sharma 35

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Contents

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

Introduction
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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History
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).

MRP Objectives
• .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
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 Benefits
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 sub-
assemblies, 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).
• Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the
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:
• Purchase orders. An order to a supplier to provide materials.
• Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing
orders.

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
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:
ICI Agrochemicals
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[4]. 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.

2. 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.

3. 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.

4. 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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Bibliography
• 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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