WHAT IS MRP?

MRP [Materials Requirement Plan]

Popular concept in 1960&1970. Consists of a computer system, a manufacturing information system, building
on inventory, production scheduling and administering all inputs to production and a concept and philosophy
of management.

Definition Of MRP SYSTEM

MRP system consists of a set of logically related procedures, decision rules, and records designed to
translate a master production schedule into time phased net inventory requirements and the planned
coverage of such requirement for each component item needed to implement schedule. An MRP system
re-plans net requirements and coverage as a result of changes in either the master schedule, demand, and
inventory status or product composition. MRP systems meet their objective by computing net
requirements for each inventory item, time-phasing them, and determining their proper coverage

OBJECTIVES

1. Ensure the availability of materials components and products for planned production and
customer delivery.

2. Maintain the lowest possible inventory level.

3. Plan manufacturing activities, delivery schedules and purchasing activities.

HOW? PROCESS

MRP starts with customer’s demand for the quantity of end product and the time when the products are
needed.

Then MRP explodes the time and need for components based upon the end product need. MRP System
focuses on inbound logistical area
MRP System uses following key elements:

1. Master Production Schedule

2. Bill of Materials
3. Inventory Status Files
4. MRP Program
5. Outputs & Reports

MRP system has developed into its current incarnation in phases. First phase is called MRPI or
Materials Requirement Planning and the second phase is called MRPII or Manufacturing Resources
Planning

MRP I is a computer based production and inventory control system [soft ware] that attempts to
minimize inventories while maintaining adequate materials for production process.
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 WHEN DOES IT GET APPLIED?

MRP I is applied when

1. The process follows an intermittent system.

2. Demand is dependent
3. Purchasing dept., their suppliers and company’s own manufacturing system is flexible enough to handle
deliveries on weekly basis

ADVANTAGES OF MRP I

1. Improved business results [ROI, profits]

2. Improved manufacturing results
3. Better manufacturing control
4. More accurate and timely information
5. Less inventory
6. Time phased ordering of materials
7. Less materials obsolescence
8. Higher reliability
9. More responsiveness to market demand
10. Reduced production costs

DISADVANTAGES OF MRP I

1. Due to small lot purchases high material acquisition costs and high ordering costs
2. Stock out costs are more as safety stock protection is low
3. A limitation of software as adapting to specific situations is difficult. So modification of the
software is necessary

MRP II

MRP I is updated and expanded to include financial and marketing and logistics elements. This newer
version is called Manufacturing Resources Planning or MRP II. Includes entire set of activities involved
in planning and control of production.

It consists of a variety of functions of modules and includes production planning, resource requirements
planning, master production scheduling, materials requirement planning [MRP I], shop floor control and
purchasing

Benefits of MRP II

1. Inventory reductions of one fourth to one third

2. Higher inventory turn over
3. Improved consistency in on-time customer delivery
4. Reduction in purchasing costs due to less urgent purchases
5. Minimization of workforce overtime
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 DISTRIBUTION RESOURCE PLAN [DRP]
Distribution Resource Plan is a widely used powerful technique applied to outbound logistics to help
determine appropriate level of inventory

Distribution requirement planning [DRP I] is defined as “the application of MRP principles to the
distribution environment [out bound logistics], integrating the special needs of distribution. It is a
dynamic model that looks at the time phased plans of events that effect inventory.

Distribution Resource Planning [DRP II] is an extension of DRP I. Distribution resources planning
applies the time phased logic of DRP I to replenish inventories in multi echelon warehousing systems.
Distribution resources planning extends DRP I to include the planning of key resources in a distribution
system –ware house space, man power levels, transport capacity [e.g. trucks, rail cars] and financial
flows.

As an extension of DRP I, DRP II uses the needs of distribution to drive the master schedule, controlling
the bill of materials and ultimately materials requirement planning. In essence, DRP I & DRP II are
outgrowths of MRP I & MRP II, applied to logistics activities of a firm.

Uses of DRP generated information

♦ Coordinate the replenishment of SKUs coming from the same source [e.g. a company owned or
vendor’s plant.]
♦ Select transportation modes and carriers and shipment sizes more cost efficiently.
♦ Schedule shipping and receiving labour
♦ Develop a master production schedule for each SKU Accurate forecasts are essential ingredients for
successful DRP II system.

MARKETING BENEFITS

• Increased service levels - improved OTD, reduced Customer Complaints

• Effective new product introduction plans

• Ability to anticipate shortages

• Improved inventory coordination

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LOGISTICS BENEFITS

• Reduced distribution costs

• Reduced inventory levels

• Decreased warehouse space requirement as inventory is low

• Lesser back orders

• Improved inventory visibility & coordination between manufacturing and logistics

CONSTRAINTS

• Needs accurate forecast

• Sources of errors in the system

- Inaccuracy in forecast quantity
- Inaccuracy in forecast location
- Inaccuracy in forecast time

• Variable performance cycles

• System nervousness

• Uncertainty buffers

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COMPARE DRP & MRP

DRP MRP
1.scope Outbound logistics Inbound logistics
2.dependence for planning Market Production Schedule worked out
inputs based on past data in the organization
[Forecast based on past data]
3. Coordination Once the finished goods Up to Finished Goods starting
responsibility are produced. from raw materials production.
4. Nature of plan Short term and accurate
5. What is forecast? Finished goods Dependent demand
6. Planning Tool Schedule prepared for Production schedule
delivery of supplies in the
outbound logistical
network.

7. Inventory management SKUs Raw Materials, components

of?
8. Planning availability of Market [retailers] & Raw material stores, Conversion
stock at? warehouses process & finished goods store

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