Material Requirement Planning (MRP I and MRP II)

6/30/2014
Course outline
 Introduction
 MRP concept
Chapter 5  Benefits and application
 MRP II (Manufacturing
MATERIAL REQUIREMENT Resource Planning
PLANNING (MRP I & MRP II)  The Japanese approach to
MRP
 Comparing MRP and Just In
Time (JIT) concept.
‘Time and tide wait for no man.’

Geoffrey Chaucer
Industrial Engineering and Management, BME III/I
Industrial Engineering and Management, BME III/II 2
By: Khem Gyanwali, Thapathali Campus, IOE,TU
1. Introduction 1. Introduction
Wheeled Coach Wheeled Coach

 Largest manufacturer of  Four Key Tasks
ambulances in the world
 Material plan must meet both the
 International competitor requirements of the master schedule
and the capabilities of the production
 12 major ambulance designs facility
 18,000 different inventory items  Plan must be executed as designed
 6,000 manufactured parts  Minimize inventory investment
 12,000 purchased parts  Maintain excellent record integrity
Industrial Engineering and Management, BME III/I Industrial Engineering and Management, BME III/I
3 By: Khem Gyanwali, Thapathali Campus, IOE,TU
4
1. Introduction 2. MRP concepts

MRP stands for material requirement planning. It is Master Production Schedule
computer based technique that:
1. Converts master production schedule (MPS) into detailed The master production schedule is based on the
schedule for requirement of raw material, component accurate estimate of demand which consists of
parts, sub-assemblies and assemblies used in the end two parts, an amount determined from the
product.
2. It then breaks the material requirements into two parts.
orders received and an estimate of the uncertain
3. Finally, it develops a schedule of order for purchased demand for the period obtained by statistical
materials and produced parts over the planning period forecasting.
(horizon).
MPS is a list of end products to be produced.
Inputs to MRP
1. Master Production Schedule (MPS) It contains item name (and code), quantity to be
2. Bill of Material (BOM) file defining the product structure. produced, and time for completing the
3. Inventory status file. production.
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2. MRP concepts 2. MRP concepts

The Planning Process The Planning Process
Production Marketing Finance Master production
Capacity Customer Cash flow schedule Change
Inventory demand master
Change production
requirements? Material schedule?
requirements plan
Procurement Human resources
Supplier Manpower Change capacity?
performance planning
Capacity
requirements plan
Management Engineering No Is capacity Is execution

Aggregate
Return on Design Realistic? plan being meeting the
production
investment completion met? plan?
Capital plan Yes
Execute capacity
Change plans
production
Master production plan?
schedule Execute
material plans
8

Bills of Material
MPS Examples List of components, ingredients, and materials needed to make
For Nancy’s Specialty Foods product
Provides product structure
Items above given level are called parents
Gross Requirements for Crabmeat Quiche
Items below given level are called children
Day 6 7 8 9 10 11 12 13 14 and so on
Amount 50 100 47 60 110 75 Lead Times
Gross Requirements for Spinach Quiche The time required to purchase, produce, or assemble an item
Day 7 8 9 10 11 12 13 14 15 16 and so on For production – the sum of the order, wait, move, setup, store,
Amount 100 200 150 60 75 100 and run times
For purchased items – the time between the recognition of a need
and the availability of the item for production
10

BOM Example
Level Product structure for “Awesome” (A) BOM Example contd…
0 A
Std. 12” Speaker kit w/

1 B(2) Std. 12” Speaker kit C(3) amp-booster Part B: 2 x number of As = (2)(50) = 100
Part C: 3 x number of As = (3)(50) = 150
Part D: 2 x number of Bs
2 E(2) E(2) F(2) Std. 12” Speaker + 2 x number of Fs = (2)(100) + (2)(300) = 800
booster assembly
Part E: 2 x number of Bs
Packing box and installation + 2 x number of Cs = (2)(100) + (2)(150) = 500
3 D(2) kit of wire, bolts, and screws G(1) D(2) Part F: 2 x number of Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300
Amp-booster
12” Speaker 12” Speaker
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Time-Phased Product Structure
Inventory Status File Must have D and E
Start production of D
It is mandatory in MRP to have accurate current data completed here so
production can begin on
on inventory status. It provides a computerized list of B
1 week
records of each material, physically in stock in the D
2 weeks to
produce
system. There will be only one inventory status for B
individual material, even if it is used at different levels 2 weeks
E
of production or in different end products. It contains
1. Material code 2 weeks
E
2. Material name 2 weeks 1 week
G C
3. Inventory on hand 3 weeks
F
4. Material on-order (yet to arrive) 1 week
D
5. Customer order for the product. | | | | | | | |
1 2 3 4 5 6 7 8
Time in weeks
14

MRP Structure
Data Files Output Reports
Working of MRP (MRP processing)
BOM Master
MRP by period
report
1. Consolidating period by period requirements
production schedule
MRP by date
for end products.
report
Lead times
2. Part explosion.
(Item master file) Planned order
report 3. Offsetting.
Inventory data
Purchase advice
4. Finding gross requirement for each
Material
requirement
planning programs
component/raw material.
(computer and
Purchasing data
software) Exception reports 5. Determining net requirement.
Order early or late or
not needed
Order quantity too

6. Procurement schedule and lot sizing.
small or too large
16
3. Benefits and limitations 3. Benefits and limitations
Benefits of MRP Limitations of MRP

1. Incorrectness in suppliers lead time or in
1. Reduction in work-in-progress. manufacturing lead time causes incorrectness in MRP
2. Priority benefits. calculations.
2. Highly computational intensive approach of MRP
3. Effective utilization of capacity. causes overdependence on MRP outputs. Any
4. Improved customer service. inaccuracy causes failure of MRP to a large extent.
3. The data used in MRP system should be reliable.
5. Reduction in lead time. Unreliable inventory data can cause a failure of MRP
6. Reduction in past due orders. system.
4. Bill of material and inventory status should be
7. Increased productivity. computerized.
8. Increased inventory turn over. 5. The product structure must be assembly oriented.
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4. MRP II (Manufacturing Resource Planning) 4. MRP II (Manufacturing Resource Planning)
 Once an MRP system is in place, inventory data can be augmented

by other useful information Week
 Labor hours 5 6 7 8
 Material costs A. Units (lead time 1 week) 100
 Capital costs Labor: 10 hours each 1,000
Machine: 2 hours each 200
 Virtually any Payable: $0 each 0
resource
B. Units (lead time 2 weeks,
 System is generally called MRP II or Material Resource Planning 2 each required) 200
Labor: 10 hours each 2,000
“A method for the effective planning of all resources of a manufacturing Machine: 2 hours each 400
company” (APICS def.) Payable: Raw material at $5 each 1,000
– Financial accounting incorporated C. Units (lead time 4 weeks,
– Sales 3 each required) 300
– Operations Planning Labor: 2 hours each 600
Machine: 1 hour each 300
– Simulate capacity requirements of different possible Master Payable: Raw material at $10 each 3,000
Production Schedules
20
4. The Japanese approach to MRP 4. The Japanese approach to MRP

Just In Time (JIT) Characteristics of JIT management
JIT is a Japanese production management philosophy which 1. Pull system of production.
has been applied in practice since the early 1970s in many 2. The degree of time lapsed between materials arrivals,
Japanese manufacturing organizations. processing and assembly of the final product for
Just-In-Time production is defined as a ‘philosophy that consumers is minimized.
focuses attention on eliminating waste by purchasing or 3. JIT allows a reduction in raw materials, work-in-progress
manufacturing just enough of the right items just in time’. and finished goods inventories,.
Some observers have called JIT hand-to-mouth approach to 4. The JIT production techniques uses containers for holding
production. It aims at having the right part at precise right parts. This allows easy identification and monitoring of
time and in the right quantity to go into assembly. inventory levels.
Other names of JIT are Stockless production, Continuous 5. An element of JIT production requires that the plant be
flow manufacturing, Toyota system, Zero inventory, Loan clean, i.e. there should be no wastes present which may
production. hinder production.
6. JIT production involves the use of ‘visible signals’ to
display the status of machinery.
22
4. The Japanese approach to MRP 4. The Japanese approach to MRP

Major tools and techniques of JIT
Elements of JIT 1. A Kanban system is a system of inventory and production control
(pull inventory system) which uses Kanbans as the principal
1. Eliminating waste. information transmission device. Kanban is a Japanese word
meaning signal. A Kanban is a card or a tag usually attached to
2. Continuous improvement. work-in-progress parts and it is used to facilitate the proper
movement of these parts. This movement may be within the
3. People involvement and employee same manufacturing plant or between plants.
empowerment. Basically there are two types of Kanbans:
4. Total Quality Management. • The ‘withdrawal Kanban’ is used to indicate the type and amount of
product which the next process should withdraw from the
preceding process.
• The ‘production Kanban’ specifies the type and quantity of product
which the next process must produce.
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4. The Japanese approach to MRP 5. Comparing MRP and Just In Time (JIT) concept
2. Set up time reduction MRP incorporates changes to orders into its scheduling
process to produce a dynamic production schedule.
- (Single Minute Exchange of Dies (SMED)) MRP embraces the concept of dependent demand: for
3. Lean production – 5s example, if production of finished product A requires
three units of product B, and production of product B
- (Siero - remove, Seition – organize, Sieso – in turn requires four units of product C and six of
keep clean, Seiketsu – standardize, Shit suke – product D, then a production level of a specific number
of units of product A requires all the corresponding
respect the rules) units of products B, C, and D to reach completion.
4. Poka –Yoke (Full Proofing)
In contrast, JIT is a manufacturing process that
- error free responds to actual orders. It relies on the timely
5. Quality at the source delivery of exactly the right raw materials in the right
place to allow for production as orders are received.
26
5. Comparing MRP and Just In Time (JIT) concept
An advantage of MRP is its ability to successfully organize

the production of each component so parts are ready when
needed and the production process doesn't stall for lack of
finished components.
An advantage of JIT is its reduction of the amount of raw
material and finished goods on hand, which can reduce
carrying costs and the likelihood of spoiled or damaged
inventory.
MRP is well-suited to a production line that operates on a
batch or special order basis.
The JIT system works well in an environment of repetitive
orders of similar products.
MRP is more responsive to fluctuations in production as it
is a change-based system. Production under the JIT system
may be hampered by lack of capacity if unexpected orders
are received.
Industrial Engineering and Management, BME III/I
27 Industrial Engineering and Management, BME III/II 28

Material Requirement Planning (MRP I and MRP II)

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6/30/2014

‘Time and tide wait for no man.’

Wheeled Coach Wheeled Coach

1. Introduction 2. MRP concepts

2. MRP concepts 2. MRP concepts

Management Engineering No Is capacity Is execution

2. MRP concepts 2. MRP concepts

2. MRP concepts 2. MRP concepts

Std. 12” Speaker kit w/

12” Speaker 12” Speaker

2. MRP concepts 2. MRP concepts

2. MRP concepts 2. MRP concepts

Order quantity too

3. Benefits and limitations 3. Benefits and limitations

Benefits of MRP Limitations of MRP

4. MRP II (Manufacturing Resource Planning) 4. MRP II (Manufacturing Resource Planning)

 Once an MRP system is in place, inventory data can be augmented

4. The Japanese approach to MRP 4. The Japanese approach to MRP

4. The Japanese approach to MRP 4. The Japanese approach to MRP

5. Comparing MRP and Just In Time (JIT) concept

An advantage of MRP is its ability to successfully organize

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