Material Requirement

UNIT 7 MATERIAL REQUIREMENT Planning

PLANNING
Structure
7.1 Introduction
Objectives

7.2 Objectives of MRP

7.3 Principles of MRP
7.4 Important Factors Affecting MRP
7.4.1 Batch Size
7.4.2 Safety Stock

7.5 Assessment of MRP

7.6 Implementation of MRP
7.7 Shortcomings Associated with MRP
7.7.1 Uncertainty
7.7.2 Capacity Planning

7.8 Outputs of MRP

7.8.1 Planned Order Schedule
7.8.2 Changes in Planned Order
7.8.3 Exception Report
7.8.4 Performance Report
7.8.5 Planning Report

7.9 Bill of Material (BOM)

7.10 Master Production Schedule (MPS)
7.11 Manufacturing Resource Planning (MRP-II)
7.12 Summary
7.13 Key Words
7.14 Answers to SAQs

7.1 INTRODUCTION
Globalization has left many service-oriented companies and manufacturing industries
with the alternative of pursuing world’s best practices. Many companies now
comprehend the need for the development of methodologies, as well as acquiring the new
productivity tool such as MRP (Material Requirement Planning), BOM (Bill of Material),
Master Production Schedule (MPS), MRP II etc., that will let them be in a commercial
position to offer competitive Manufacturing Resource Planning. It assure customers
about quality goods and services, and compliance them with international quality
requirements on different industry fields.
Material Requirement Planning (MRP) initiates with the principle that many materials
held in inventory are generally dependent on demands. Materials are of two types : raw
material kept in inventory and partially complete products held in process inventory.
The raw material quantity of a particular material with dependent demand that is needed
in any week, depend on the number of products to be produced that require the material.
The demand for raw materials and partially completed products does not have to be
forecasted, because if it is known what finished products must be produced in a week, the
amount of each material needed to produce these finished products can be calculated.
The basic structure of MRP system is shown in Figure 7.1. Normally it is a 19
Planning Function in computer-based system that takes the Master Production Schedule (MPS) as given,
Production Management explodes the MPS into the required amount of raw materials, parts, subassemblies, and
assemblies needed in each week of the planning horizon; reduces these material
requirements to account for materials that are in inventory or on order; and develops a
schedule of orders for purchased materials and produced parts over the planning horizon.
Error!
Input Data in MRP system

Order and Master Bill of

Forecast Inventory File Production Material
Schedule

Material Requirement
Planning

Inventory Final Planned Final Final

Transaction Order Exception Performance
Data Schedule Report Report

Figure 7.1 : Basic Structure of MRP System

Objectives
After studying this unit, you should be able to
• understand material requirement planning,
• learn the principle of MRP,
• know the important factors affecting MRP,
• explain bill of material and master production schedule, and
• understand manufacturing resource planning.

7.2 OBJECTIVES OF MRP

MRP has become a valuable planning tool for most of the manufacturing units around the
world. After implementing MRP, common benefits are increased inventory turns, more
delivery promises meeting, fewer orders that need to be splitted because of material
shortages, fewer expediters required, and shorter lead times in delivering the products.
The objectives of MRP are to :
(a) improve customer service
(b) reduce inventory investment
(c) improve plant operating efficiency
To Improve Customer Service
20
 Improving customer service means to supply more products than just required Material Requirement
when customer orders are received. To have satisfied customers also means Planning
meeting delivery promises and shortening delivery times. Not only does MRP
provide the necessary management information to make delivery promises that can
be kept, but also the promises are locked into the MRP control system that guides
production. Therefore, promised delivery dates become the goal to be met by the
organization, and the probability of meeting promised delivery dates is improved.
To Reduce Inventory Investment
When fixed order quantity and order point systems are used to plan orders for a
raw material, the order quantity plus safety stock remains in inventory until the
raw material's end item appears in the Master Production Schedule (MPS).
Because these facades may be several weeks apart, the pattern of inventory levels
is long periods of full inventories interspersed with brief periods of low levels. On
the other hand, in MRP, orders for raw materials are timed to arrive at
approximately the time at which raw material’s end item appears in the MPS. The
pattern of inventory levels in MRP is long periods with low levels of inventory,
interspersed with brief periods of full inventories. The impact of MRP on raw-
materials inventory levels is therefore dramatically reduced by using average
inventory levels.
To Improve Plant Operating Efficiency
MRP controls the quantity and timing of deliveries of raw materials, parts,
subassemblies, and assemblies. In MRP, the right materials are delivered at the
right time. Additionally, inflows can be slowed or accelerated in response to
changes in production schedules. MRP results in reduction of labour, material, and
variable overhead costs for the following reasons :
(a) Reduced numbers of stock-outs and material delivery delays resulting
in more production without increase in the number of employees and
machines.
(b) Reduction of the incidence of scrapped subassemblies, assemblies,
and products resulting in the use of correct parts.
(c) Capacity of the production departments is increased as a result of
decreased production idle time, increased efficiency of the physical
movements of materials, and reduced confusion and planning delays.
All aforementioned benefits result mainly from the philosophy of MRP systems.
MRP systems are based on the philosophy that each raw material, part, and
assembly needed in production should arrive simultaneously at the right time to
produce the end items in the MPS. This philosophy results in accelerating
materials that are going to be late and slowing down the delivery of materials that
are going to be too early. For example, if one material is going to be late and
nothing can be done about it, the other materials needed to assemble the end item
will not be needed until the one late material arrives. The MRP system changes the
due dates of all the materials so that materials arrive simultaneously to assemble
the end item. A chief benefit of MRP systems is that production operations work
on parts that are really needed on their due dates so that production capacity is
being used to directly support the MPS.
SAQ 1
(a) What are the input and output of MRP?
(b) What are the main objectives of MRP?
(c) How an MRP can reduce the inventory investment?
(d) How an MRP can increase plant operating efficiency?

21
Planning Function in
Production Management 7.3 PRINCIPLES OF MRP
A material requirement planning is concerned primarily with the scheduling of activities
and the management of inventories. It is particularly useful where there is a need to
produce components, items or sub-assemblies which themselves are later used in the
production of a final product or, in non-manufacturing organisations, where the provision
of a transport or service for a customer necessitates the use or provision of certain
subsystems. For example, it may be used when a customer orders a computer from a
manufacturing organization, which must first manufacture or obtain various components
which are used in the final assembly of that computer for that customer. Similarly, in
treating a patient in a hospital, e.g. for a major operation, the hospital must, provide
accommodation for the patient, diagnostic tests, anesthetics and post-care facilities as
well as surgical facilities so that the patient's total requirements are satisfied. In these two
cases the product or service requested by the customer can be seen to be the final output
of the system, which derives from certain lower-level provisions. These lower-level
provisions are considered to be dependent on the customer’s final requirement. Given a
measure or forecast of the total number of customers, the demand at lower levels can be
obtained. The Materials Requirements Planning technique is used precisely for this
purpose. It takes as one of its inputs, the measured or forecast demand for the system's
outputs. It breaks down this demand into its component parts, compares this requirement
against existing inventories, and seeks to schedule the parts required against available
capacity. The MRP procedure produces a schedule for all component parts, if necessary
through to purchasing requirements, and where appropriate shows expected shortages
due to capacity limitations. The basic procedure is illustrated in Figure 7.2. This
procedure is undertaken on a repetitive basis. The explosion and scheduling procedure
begin to be repeated at regular intervals, perhaps corresponding to the intervals at which
demand forecasting is undertaken or as and when required as a result of changes in
known demand. The use of this procedure involves considerable data processing, even
for relatively simple availability of cheap computing power in the organizations.

Opening Master
Error! Inventory Schedule

Purchase Bill of
Schedule Requirements

MRP Opening
Closing
Inventory Capacity

Scheduling
for Operating Shortages
System Closing
Capacity

Figure 7.2 : Fundamental Structure of Material Requirement Planning Procedure

22
SAQ 2 Material Requirement
Planning
(a) Define the principles of MRP.
(b) How does scheduling affect the procedure of MRP?

7.4 IMPORTANT FACTORS AFFECTING MRP

Other factors that are commonly used in MRP applications are batch size, and safety
stock.
7.4.1 Batch Size (BS)
The operation of an MRP procedure results in the purchase and/or manufacture of items
in the quantities required when they are required. But this takes no account of the need to
purchase and manufacture economic batch sizes, which balance ordering or set-up costs
against the holding costs. If these economies are to be obtained, the MRP procedure must
accommodate an economic batching procedure. One method of achieving this is to issue
an order, whether a purchase or a manufacturing order, for a fixed quantity of an item
whenever there is a requirement for that item. Items surplus to requirements are then
placed in stock, and when at a later date the item is required again, stock is depleted or a
further economic batch quantity is manufactured. In fact, the need for inventories of
items over a period of time results mainly from the need to manufacture items in
economic batches unless there are safety stock considerations at these levels.
7.4.2 Safety Stock (SS)
Where an MRP procedure is used against forecast end-product demand there is a risk that
the forecast may be inaccurate and therefore on these occasions more end products are
required than had been anticipated for a given period. To protect against such a situation,
it would be necessary to hold some safety stocks. Where customer requirements are
concerned exclusively with end products rather than also being expressed in terms of
components or parts, safety stock is best held at the higher levels within the bill of
requirements structure, e.g. at final sub-assembly or final product assembly levels. In
these circumstances the MRP procedure itself tends to protect against shortage of lower-
level items by producing them in time to meet the final master production schedule.
Hence safety stock is normally held only at lower levels where customer demand can be
expressed in terms of component parts as well as finished products.
SAQ 3
(a) What is batch size?
(b) What is safety stock?

7.5 ASSESSMENT OF MRP

The advantages associated with MRP over more conventional inventory-planning
approaches such as fixed order quantities and order points have been demonstrated in
upcoming section. These include improved customer service, reduced inventory levels,
and enhanced operating efficiency of production departments. The characteristics of
production systems that support the successful implementation of MRP are :
• An efficient computer system
23
Planning Function in • Accurate computerized bill of material along with inventory status files for
Production Management all end items and materials
• A production system that manufacture discrete products processed through
several production steps made up of raw materials, parts, subassemblies, and
assemblies.
• Production process having long processing times.
• Relatively reliable lead time
• The master schedule.
• Top management commitment along with its support
MRP has not been and will not be applied to all production systems. In some Production
Operations Management (POM) applications, MRP is either unnecessary or economically
unjustifiable. The frequency of MRP usage is, however, definitely on a dramatic upward
trend. As we gain more experience with MRP, we realize that it is not a panacea. It
doesn’t solve all our inventory planning problems. Basically, MRP is a POM
computerized information system. When computer systems are ineffective, inventory
status and bills of material files are inaccurate, master production schedules are
undependable, and when the remainder of the organization is otherwise mismanaged,
MRP will not be of much help. It will generate greater volumes of inaccurate and unused
information than previously thought possible. MRP is best applied when production
systems are basically well managed and a more comprehensive production and inventory
planning system is needed.
However, for effective MRP, lead times must be reliable. Also, the MPS must be frozen
for a time before actual production to the MPS is begun, meaning that what is to be
produced, the MPS, must be known with certainty and the timing and quantity of raw
material receipts must be dependable. When lot sizes of raw materials are large and
variability in demand is small, the conventional economic lot size and order point
inventory planning systems tend to work quite well because their assumptions of uniform
demand apply. MRP therefore offers more improvement in inventory planning when lot
sizes are small and demand variability is large.
SAQ 4
(a) What are the characteristics of production system to support MRP?
(b) What is the effect of lot size in MRP?
(c) How does lead time affect MRP?

7.6 IMPLEMENTATION OF MRP

Generally, in product focused system, raw material ordered exactly to the finished good
requirement, is instantaneous corrected into the system product.
MRP delivers the most benefits to process-focused systems that have long processing
times and complex multistage production steps due to its complex inventory and
production planning. Picture of hypothetical production system that converts raw
materials into finished goods instantaneously, is the case in some simple product-focused
systems. Raw materials would be ordered in to exactly match finished-goods
requirements. In process-focused systems, the in-house processing lead times exceed the
lead times required to obtain the raw materials from suppliers. MRP’s ability planned
order receipts to account for long lead times and complex production processing steps
24
greatly simplifies production and inventory planning. MRP is conventionally applied Material Requirement
only to manufacturing systems. This means that MRP is seldom applied to service Planning
systems, petroleum refineries, retailing systems, transportation firms, and other
non-manufacturing systems. Many believe that MRP can be successfully applied to some
of the non-manufacturing systems. When service systems require sets of raw materials to
deliver one unit of service, MRP potentially can be applied. Surgical operations in large
hospitals, high-volume professional services, and other processes are likely to use MRP
systems in the future.
Implementation of an MRP system is not a painless process. Because MRP is an
information system that is driven by information, merely buying software and maybe
some hardware does not guarantee a successful MRP system. There are some significant
startup costs and some ongoing costs in implementing an MRP system. Many of these
costs are associated with rectifying poor or inadequate information as well as instituting
system discipline to ensure that correct information continues to flow into the MRP
system. These are usually hidden costs that are often not formally recognized when the
proposal for an MRP system is presented.
Example 7.1
The total requirements for a material from an MRP schedule are given in the
following table :
Week
Total 1 2 3 4 5 6 7 8
Requirements
200 400 900 500 200 200 200 1400

The annual demand for this end item is estimated to be 25,000 units over a
50 week per year schedule, or an average of 500 units per week. It costs Rs. 800 to
change over the machines in the final assembly department to this end item when a
production lot is begun. It costs Rs. 1.10 per unit when one unit of this product
must be carried in inventory from one week to another; therefore, when one unit of
this product is in ending inventory, it must be carried over as beginning inventory
in the next week and incurs the Rs. 1.10 per unit carrying cost. Determine which of
these lots sizing methods results in the least carrying and changeover (or order)
costs for the eight week schedule :
(a) Lot for Lot (LFL),
(b) Economic Order Quantity (EOQ), or
(c) Period Order Quantity (POQ).
Solution
(a) Develop the total carrying costs over the eight week schedule for the
lot-for-lot method. Lot-For-Lot (LFL) production lots equal the net
requirement in each period.
Week Costs
1 2 3 4 5 6 7 8 Carrying Ordering Total
Net Requirements 200 400 900 500 200 200 200 1400
Beginning 0 0 0 0 0 0 0 0
Inventory
Production Lots 200 400 900 500 200 200 200 1400 0.00 6400.00 6400.00
Ending Inventory 0 0 0 0 0 0 0 0

Ordering costs = Numbers of orders × 800.00 = 8 × 800.00 = 6400.00

(b) Develop the total carrying costs over the eight week schedule for the EOQ
lot sizing method. EOQ production lots equal the computed EOQ.
First, compute the EOQ :
25
Planning Function in 2 DS 2 × 25000 × 800
Production Management EOQ = = = 853
C 1.1 × 50

Week Costs
1 2 3 4 5 6 7 8 Carrying Orderin Total
g
Net 200 400 900 500 200 200 200 1400
Requirements
Beginning 0 653 253 206 559 359 159 812
Inventory
Production 853 0 853 853 0 0 853 853 3592.60 4000.00 7592.60
Lots
Ending 653 253 206 559 359 159 812 265
Inventory

Carrying costs = sum of ending inventories × 1.10 = 3266 × 1.10 = 3592.60

Ordering costs = Number of orders × 800.00 = 5 × 800.00 = 4000.00
(c) Develop the total carrying costs over the eight week schedule for the POQ
lot sizing method. POQ production lots equal the net requirements for POQ
computed periods.
First, compute the POQ :

Number of weeks per year 50 50

POQ = = =
Number of orders per year D 25000
EOQ 853
= 1.706 or 2 weeks per order
Week Costs
1 2 3 4 5 6 7 8 Carrying Ordering Total
Net 200 400 900 500 200 200 200 1400
Requirements
Beginning 0 400 0 500 0 200 0 1400
Inventory
Production 600 0 1400 0 400 0 1600 0 2750.00 3200.00 5950.00
Lots
Ending 400 0 500 0 200 0 1400 0
Inventory

Carrying costs= sum of ending inventories × 1.10 = 2500 × 1.10 = 2750.00

Ordering costs = Number of orders × 800.00 = 4 × 800.00 = 3200.00
Among the lot sizing methods considered for this data, the POQ method
exhibits the least carrying and ordering cost for the eight week net
requirements schedule.

SAQ 5
(a) Where is MRP implemented?
(b) Explain different lot sizing methods.

26
 Material Requirement
7.7 SHORTCOMINGS ASSOCIATED WITH MRP Planning

MRP is a closed production system with two major inputs :

(a) the master production schedule for the end item, and
(b) the relationships between the various components, modules, and
subassemblies comprising the production process for that end item.
The method is logical and seemingly sensible for scheduling production lot sizes.
However, many of the assumptions made are unrealistic. Now we will discuss some of
these assumptions, the problems that arise as a result of them, and the methodology for
dealing with these problems. Main shortcomings associated with MRP are uncertainty,
and capacity planning.

7.7.1 Uncertainty
Underlying MRP is the assumption that all required information is known with certainty.
However, uncertainties do exist. The two key sources of uncertainty are the forecasts for
future sales of the end item and the estimation of the production lead times from one
level to another. Forecast uncertainty usually means that the realization of demand is
likely to be different from the forecast of that demand. In the production planning
context, it could also mean that updated forecasts of future demands are different from
earlier forecasts of those demands. Forecasts must be revised when new orders are
accepted, i.e. prior orders are canceled, or new information about the marketplace
becomes available. That has two implications in the MRP system. One is that all of the
lot-sizing decisions that were determined in the last run of the system could be incorrect,
and even more problematic, former decisions that are currently being implemented in the
production process may be incorrect.
The analysis of stochastic inventory models shows that an optimal policy included safety
stock to protect against the uncertainty of demand. That is, we would order to a level
exceeding expected demand. The same logic can be applied to MRP systems. The
manner in which uncertainty transmits itself through a complex multilevel production
system is not well understood. For that reason generally, it is not recommended to
include independent safety stock at all levels of the system. Suitable safety levels can be
built into the forecasts for the end item. These will automatically be transmitted down
through the system to the lower levels through the explosion calculus.

7.7.2 Capacity Planning

Another important issue that is not treated explicitly by MRP is the capacity of the
production facility. The type of capacitated lot-sizing method deals with production
capacities at one level of the system, but will not solve the overall capacity problem. The
problem is that even if lot sizes at some level do not exceed the production capacities,
there is no guarantee that when these lot sizes are translated to gross requirements at a
lower level, these requirements can also be satisfied with the existing capacity. Hence, a
feasible production schedule at one level may result in an infeasible requirements
schedule at a lower level.
Capacity Requirements Planning (CRP) is the process by which the capacity
requirements placed on a work center or group of work centers is computed by using the
output of the MRP planned order releases. If the planned order releases result in an
infeasible requirements schedule, there are several possible corrective actions. One is to
schedule overtime at the bottleneck locations. Another is to revise the MPS so that the
planned order releases at lower levels can be achieved with the current system capacity.
This is clearly a cumbersome way to solve the problem, requiring an iterative trial and
error process between the CRP and the MRP.

27
Planning Function in SAQ 6
Production Management
(a) What are the main shortcomings of MRP?
(b) How uncertainties of manufacturing process affect MRP?
(c) Explain effects of capacity planning in MRP.

7.8 OUTPUTS OF MRP

The outputs of MRP systems dynamically provide the schedule of materials for the future
and amount of each material required in each time period to support the MPS.
The main outputs of MRP system are :
(a) Planned order schedule
(b) Changes in planned orders
(c) Exception reports
(d) Performance reports
(e) Planning reports
7.8.1 Planned Order Schedule
It provides a plan of the quantity of every material to be ordered in a certain period of
time. This schedule is used mainly for placing purchase orders to procure parts,
subassemblies, or assemblies from suppliers. This planned orders schedule becomes a
guide for production schedule at supplier’s end and for future in-house production
schedules.
7.8.2 Changes in Planned Order
It is also know as modification of previous planned orders. Quantities of orders can be
changed, orders can be canceled, or the orders can be delayed or advanced to different
time periods through the updating process.
7.8.3 Exception Report
Exception report lists items requiring management attention in order to provide the right
quantity of materials in each time period. Typical exceptions noted are reported errors,
late orders, and excessive scrap.
7.8.4 Performance Report
Performance report indicates how well the system is operating. Examples of performance
measures utilized are inventory turnovers, percentage of delivery promises kept, and
stock-out incidences.
7.8.5 Planning Report
Planning report is used in future inventory-planning activities. Examples of such
planning information are inventory forecasts, purchase commitment reports, traces to
demand sources, and long- range material requirements planning.
SAQ 7
(a) What are the main outputs of MRP?
(b) Explain planned order schedule.
(c) Write short notes on: performance report and planning report.

28
 Material Requirement
7.9 BILL OF MATERIAL (BOM) Planning

A bill of material is a list of the materials along with their quantity required to produce
one unit of a product, or end item. Hence, each manufacturing product has a bill of
material. A bills of material file some time known as product structure file. BOM is a
complete list of all finished products, the quantity of each material in each product and
the structure of assemblies, subassemblies, parts, and raw materials and their relationship
with the products. Another term for a bill of material is indented bill of material. It a list
in which the parent is in the margin and its components are indented to show structure.
The bil1s of material file is generally up-to-date computerized files that must be revised
as products are redesigned. The main hurdle associated with BOM is its accuracy that
must be overcome in most MRP applications. With the confidence that the file is correct,
once the MRS is prepared, end item in the MPS can be exploded into the assemblies,
subassemblies, parts and raw materials required. These units may be either purchased
from outside suppliers or produced in in-house production departments.
BOM in fact identifies the component parts of final output product. At each level
different component, material or sub-assemblies are shown, so the bill of requirements
shows not only the total number of sub-parts but also the manner in which these parts
eventually come together to constitute the final product. The lead time between the levels
is also shown as illustrated in Figure 7.3. Each item is assigned to one level only, and
each item at each level has a unique coding. The different level may correspond to
different design. Where complex end products may be made in several different possible
configurations from a large number of parts or sub-assemblies which may be assembled
in different ways, it is common to use a modular bill of requirement structure.

Final
Product
Level 0

Error! Sub-assembly Level 1

Sub-assembly unit 2
unit 1

Sub-assembly Component
Unit 2.1 2/1
Component Component
1/1 1/2

Level 2

Sub-assembly Component
Unit 2.1.1 2.1/1
Level 3

Component Component Component

2.1.1/1 2.1.1/2 2.1.1/3 Level 4

Figure 7.3 : Basic Structure of Bill of Material

SAQ 8
(a) What is the definition of BOM?
(b) What are different levels for preparing BOM?
29
Planning Function in
Production Management 7.10 MASTER PRODUCTION SCHEDULE (MPS)
The Master Production Schedule (MPS) is a line on the master schedule grid that reflects
the anticipated building schedule for those items assigned to the master scheduler. The
master scheduler maintains this schedule, and in turn, it becomes a set of planning
numbers that drives material requirements planning. It represents what the company
plans to produce expressed in specific configurations, quantities, and dates. MPS is not a
sale item forecast that represents a statement of demand. It must take into account the
forecast, the production plan, and other important considerations such as backlog,
availability of material, availability of capacity, and management policies and goals. The
basic structure along with different component pertaining to MPS system is illustrated in
Figure 7.4.
In aggregate planning operations managers develop medium-range plans of how they will
produce products for the next several months. These plans contains necessary
information required to manufactured the products such as amount of labor,
subcontracting, and other sources of capacity to be used. It also engages operations
managers to develop short-range production plan for the production of finished products
in next several weeks. Aggregate production plan of a manufacturing unit is shown in
Table 7.1 while the hypothetical master production schedule is shown in Table 7.2.

Master Production
Scheduling
Process

Customer Orders
(Detail of Customer
Order, Due Dates)

Error!

Forecasts
(Detail of
Customer Order,
Due Dates)

Inventory Status
(Balances,
Planned,
Receipts)

Production Capacity
(Output Rates,
Planned Downtime)

Figure 7.4 : Basic Structure of Master Production Schedule

Table 7.1 : Aggregate Production Plan of a Manufacturing Unit

30
 Material Requirement
Day Planning
Production Line I II III IV V VI VII VIII
Model line A 50 20 30 40 30 60 70 80
Model line B 80 46 44 80 60 44 65 −
Model line C 78 34 54 12 56 88 34 −
Model line D 44 56 − − − − 40 34
Model line F 80 70 34 54 32 48 − −
Model line G 45 56 − − − − − −
Model line H 30 50 − − 56 − − −

Table 7.2 : Master Production Schedule of Above Mentioned

Aggregate Production Plan

Day
Production Line I II III IV V VI VII VIII
Model line A1 05 10 25 30 30 40 20 10
Model line A2 45 10 05 10 − 20 50 70
Model line B1 20 20 04 15 20 14 20 −
Model line B2 10 20 10 50 10 10 30 −
Model line B3 50 06 30 15 40 20 15 −
Model line C1 69 20 50 6 50 80 30 −
Model line C2 09 14 04 6 06 08 04 −
Model line D1 34 36 − − − − 20 30
Model line D2 10 26 − − − − 20 04
Model line F1 30 40 10 04 05 40 − −
Model line F2 20 20 14 10 22 04 − −
Model line F3 30 20 10 40 05 04 − −
Model line G 45 56 − − − − − −
Model line H1 15 40 − − 50 − − −
Model line H2 15 10 − − 06 − − −

On the basis of production plan production schedule are divided into three categories :
• Long range production schedule
• Medium range production schedule
• Short range production schedule
Long range production schedule are used to plant facilities and equipments, major
suppliers, and production processes that become constraints on the medium and short
range production plans. Medium-range production schedule develops aggregate planning
that includes plans of concerning employment, aggregate inventory, facility modification,
and material supply contracts. These aggregate plans impose constraints on short
production plans. The short range production plans are plans for producing finished
goods or end items, which are used to drive production planning.
A product included in the master production schedule is divided into three categories :
31
Planning Function in • Firm Customer Orders
Production Management
• Forecasted Demand
• Spare Parts
Productions in each category vary from company to company. Is some cases one or more
categories may be omitted. Companies generally producing assembled products will have
to handle all three types. In the case of specific customer order, the company is usually
enforced to deliver the item by a particular due date to the sales department. In the
second category, production output quantities are based on statistical forecasting
techniques applied to previous demand patterns that are estimated by the sales staff and
other sources. For many companies, forecasted demand constitutes the largest portion of
the master schedule. The third category consists of repair parts that will either be stocked
in the company’s service department or sent directly to the customer. Some companies
exclude this third category for the master schedule since it does not represent end
products.
Master production schedule generally known as medium range plan. It always takes
account of lead time, order of raw materials, produce parts in the manufacturing units and
assembly of the end products. Depending on the types of product, lead time vary from a
day to many months. For a production order, MPS is usually considered to be fixed in the
near term, i.e. changes are not allowed for a short period because it is difficult to adjust
production schedule within such a short period of time. However, adjustments are
allowed for a long period. In this period, manufacturing units are trying to cope with
changing demand pattern or new products are introduced. Hence, aggregate production
plan is not only the input that control the master production schedule but may affect the
demand of new customer orders and changes in sale forecast over the near time.
Example 7.2
A manufacturing unit produces two products M and N on a produce to stock basis.
The estimated demand for the product M and N over the next six week are shown
in the following Tables 7.3 and 7.4.
Table 7.3 : Demands for Product M from All Sources

Source of Demand Weekly Demand (Number of Product

M’s)
1 2 3 4 5 6
Orders received by the 30 20 20
company
Branch Warehouse Orders 30
R&D Orders 20 20
Customer Demand 30 30 30 30 30 30
Total Demands for Product M 30 30 80 80 50 50

Table 7.4 : Demands for Product N from All Sources

Source of Demand Weekly Demand (Number of Product
N’s)
1 2 3 4 5 6
Orders received by the 20 20
company
Branch Warehouse Orders 10 30
R&D Orders 20 20
Customer Demand 40 40 40 30 30 30
Total Demands for Product N 40 50 60 60 70 50
32
 The amount for the safety stock for product M is 50 and for product N is 40. The Material Requirement
fixed lot size for M is 70 and for N are 80. The beginning inventory for M is 90 Planning
and for N are 70. Make a Master Production Schedule (MPS) for the product
M and N.
Solution
For both products M and N, take the total demands, consider beginning inventory,
determine in which weeks ending inventory would fall below the safety stock and
thus require production and schedule a lot of the product to be produced during
those weeks.
Table 7.5 : Master Production Schedule (Number of Product M and N)
End Weeks
Item
1 2 3 4 5 6
M Total Demand 30 30 80 80 50 50
Beginning 90 60 30 20 10 30
Inventory
Required − − 70 70 70 70
Production
Ending 60 30 20 10 30 50
Inventory
N Total Demand 40 50 60 60 70 50
Beginning 80 40 70 10 30 40
Inventory
Required − 80 − 80 80 80
Production
Ending 40 70 10 30 40 70
Inventory

Table 7.6 : MPS for Product M

Week Beginning Total Balanc Required Ending
Inventory Demand e Production Inventory
1 90 30 60 − 60
2 60 30 30 − 30
3 30 80 (50) 70 20
4 20 80 (60) 70 10
5 10 50 (40) 70 30
6 30 50 (20) 70 50

In week 1, the balance exceeds the desired safety stock; therefore no production of
product M is needed.
In week 2, the balance is also enough to provide the desired safety stock and no
production of product M is required.
In week 3, the balance would actually be negative if production of M where not
scheduled therefore a fixed lot size of 70 product M is scheduled in third week.
In week 4, the balance would actually be negative if production of M where not
scheduled therefore a fixed lot size of 70 product M is scheduled in fourth week.
In week 5, the balance would actually be negative if production of M where not
scheduled therefore a fixed lot size of 70 product M is scheduled in fifth week.
In week 6, the balance would actually be negative if production of M where not
scheduled therefore a fixed lot size of 70 product M is scheduled in sixth week. 33
Planning Function in Table 7.7 : MPS for Product N
Production Management
Week Beginning Total Balanc Required Ending
Inventory Demand e Production Inventory
1 80 40 40 − 40
2 40 50 (10) 80 70
3 70 60 10 − 10
4 10 60 (50) 80 30
5 30 70 (40) 80 40
6 40 50 (10) 80 70

In week 1, the balance exceeds the desired safety stock; therefore no production of
product N is needed.
In week 2, the balance would actually be negative if production of N where not
scheduled therefore a fixed lot size of 80 product N is scheduled in second week.
In week 3, the balance is also enough to provide the desired safety stock and no
production of product N is required.
In week 4, the balance would actually be negative if production of N where not
scheduled therefore a fixed lot size of 80 product N is scheduled in fourth week.
In week 5, the balance would actual negative if production of N where not
scheduled therefore a fixed lot size of 80 product N is scheduled in fifth week.
In week 6, the balance would actual negative if production of N where not
scheduled therefore a fixed lot size of 80 product N is scheduled in sixth week.
SAQ 9
(a) What is the aggregate production plan?
(b) What are the different categories of production schedule?
(c) What is the main effect of spare parts in MPS?

7.11 MANUFACTURING RESOURCE PLANNING

(MRP-II)
This is a development in MRP that seeks to address some of its shortcomings. It includes
all of the elements of MRP. An outline of the elements of an MRP II system is illustrated
in Figure 7.5. However, MRP-II includes the following four major developments from
MRP :
(a) Feedback
(b) Resource Scheduling
(c) Batching Rule
(d) Software extension programs
Feedback
MRP-II includes feedback from the shop floor environment on how the work has
progressed, to all levels of the schedule so that the next run can be updated on a
regular basis. For this reason it is also known as Closed Loop MRP.
34
Resource Scheduling Material Requirement
Planning
There is always a scheduling capability within the heart of the manufacturing
system that concentrates on the resources (i.e. the plant and equipment required to
convert the raw materials into finished goods). For this reason the initials ‘MRP’
now mean Manufacturing Resources Planning. The advantages of this
development are that detailed plans can be implemented to the shop floor and can
be reported by operations, which put forward much tighter control over the plant.
Moreover loading by resource means that capacity is taken into account. The
difficulty is that capacity is only considered after the MRP schedule has been
developed. It may turn out that insufficient time was allowed within the MRP
schedule for the individual operations to be completed.
Error!

Orders and Sales

Master Schedule Bill of

Materials

Inventory Control Requirement Capacity

Planning Management

Purchasing Scheduling
Management

Cost Monitoring Maintenance

Accounting and Control Management

Figure 7.5 : An Outline of the Element of MRP II System

Batching Rules
Generally, software packages are made that offer a variety of batching rules.
Three of the more important batche rules are ‘Lot for Lot’, ‘EBQ’ and ‘Part Period
Cover’.
• Lot for Lot batches means batches that match the orders. Therefore if
a company is planning to make 10 of Product N followed by 20 of
Product M, then the batches throughout the process will match this
requirement. If both N and M require two of a certain sub assembly
35
Planning Function in then that will be made in quantities of 20 of N and 40 of M. It is the
Production Management batching implicitly followed in basic MRP.
• EBQ stands for Economic Batch Quantity. The batch size is
calculated by a formula that minimizes the cost through balancing the
set up cost against the cost of stock.
• Part Period Cover means making batches whose size cover a fixed
period of demand. A policy of making a week’s requirement in one
batch is an example.
Software Extension Programs
A large number of software programmes are included in the MRP II suite. Some of
these are further designed to help the scheduling procedure. Out of them, most
important is Rough Cut Capacity Planning (RCCP), an initial attempt to match the
order load to the capacity available, by calculating the load per resource.
Overloads are identified and orders can be moved to achieve a balance. This has
been described as knocking the mountains into the valleys.
Other additions are designed to extend the application of the MRP II package. For
example it may include an option for entering and invoicing sales orders. Another
common extension is into stock recording and a third into cost accounting. A full
MRP II implementation can therefore act as an integrated database for the
company.
SAQ 10
(a) What are the features of MRP II?
(b) What are the main differences between MRP and MRP II?

7.12 SUMMARY
Materials requirements planning (MRP) is a set of procedures for converting forecasted
demand for a manufactured product into a requirement schedule for the components,
subassemblies, and raw materials comprising that product. A closely related concept is
that of the master production schedule (MPS), which is a specification of the projected
needs of the end product by time period. The explosion calculus represents the set of
rules and procedures for converting the MPS into the requirements at lower levels. The
information required to do the explosion calculus is contained in the product structure
diagram and the indented bill-of-materials list. The two key pieces of information
contained in the product structure diagram are the production lead times needed to
produce the specific component, and the multiplier giving the number of units of the
component required to produce one item at the next higher level of the product structure.
Most of MRP systems are based on a lot-for-lot production schedule. The number of
units of a component produced in a period is the same as the requirements for that
component in that period. However, if setup and holding costs can be estimated
accurately, it is possible to find other lot-sizing rules that are more economical. We have
also treated the dynamic lot-sizing problem when capacity constraints exist. One of the
limitations of MRP is that capacities are ignored. This is especially important if lot sizing
is incorporated into the system. Finding optimal solutions to a capacity-constrained
inventory system subject to time-varying demand is an extremely difficult problem.
System nervousness is one problem that arises while implementing the MRP system, The
term refers to the unanticipated changes in a schedule that result when the planning
horizon is rolled forward by one period. Another difficulty is that in many circumstances,
36 production lead times depend on the lot sizes; MRP assumes that production lead times
are fixed; still another problem is that the yields at various levels of the process may not Material Requirement
be perfect. If the yield rates can be accurately estimated in advance, these rates can be Planning
factored into the calculations in a straightforward manner. However, in many industries
the yield rates may be difficult to estimate in advance. MRP II is implemented generally
to overcome some of the difficulties involved in implication procedure of MRP. It
integrates financial, accounting and marketing functions of the production planning
system.

7.13 KEY WORDS

MRP : Materials Requirement Planning (MRP) is
concerned primarily with the scheduling of
activities and the management of inventories.
MPS : Master Production Schedule (MPS) is a line on the
master schedule grid that reflects the anticipated
building schedule for those items assigned to the
master schedule.
BOM : Bill of Material (BOM) is a list of the materials
along with their quantity required to produce one
unit of a product, or end item.

7.14 ANSWERS TO SAQs

Refer the relevant text in this unit for answers to SAQs.

37