MAF651: Seminar 1

Material Requirements planning

Objectives

1. Identifying Production Needs: MRP enables management to identify the items that will be
manufactured. It guarantees that raw materials are readily available for production by
analysing requirements.

2. Inventory Level Optimisation: The system strives to maintain the lowest raw material and
finished product levels in the shop. This optimisation aids in the streamlining of operations
and the reduction of superfluous inventories.

3. Efficient Coordination: Manufacturing, delivery schedules, and purchasing activities are all
aided by MRP. It blends multiple production and strategic requirements, efficiently
quantifying useful output.

a. Production Scheduling: - MRP helps in scheduling production activities based on demand

forecasts, lead times, and available resources. It ensures that production orders are released at the right
time to meet customer requirements. - For example, if a company receives an order for 100 units of a
product, MRP calculates the required raw materials, schedules production, and coordinates the
manufacturing process to meet the delivery deadline.

c. Purchasing and Procurement: - MRP coordinates purchasing activities by generating purchase

orders for raw materials. It considers lead times, supplier availability, and production schedules. - For
instance, if a specific raw material is needed for production in two weeks, MRP triggers a purchase
order well in advance to ensure timely delivery.

https://thecustomizewindows.com/2013/08/material-requirements-planning-mrp-basics/

https://corporatefinanceinstitute.com/resources/valuation/material-requirements-planning-
mrp/
Scopes of MRP

1. What components are needed?

o Identify the specific materials or components required to produce finished

goods.

o This involves understanding the bill of materials (BOM) and the hierarchy of
components. The BOM is a comprehensive list of all components required to
manufacture a finished product. It includes raw materials, sub-assemblies,
and purchased parts. Hierarchy of Components: Understanding the
hierarchical structure of components is crucial. For example: A car assembly
may consist of an engine, transmission, wheels, and various smaller parts.

2. How many of each component do we need?

o Determine the quantities needed for each material.

o Gross Requirements: These represent the total quantity needed to meet

customer demand. They consider both actual orders and forecasted demand.

o Net Requirements: Net requirements adjust gross requirements by

considering existing inventory and scheduled receipts (e.g., open purchase
orders or work orders).

o Safety Stock: MRP systems factor in safety stock to handle uncertainties

(e.g., unexpected demand spikes or supply disruptions).

3. When are they needed?

o Establish the timing for material availability.

o Align procurement or production schedules with the overall production plan

o Lead Times: MRP calculates lead times for each component. Lead time
includes the time required for procurement, production, and transportation.

o Planned Orders: MRP generates planned orders (purchase orders or

production orders) based on lead times and material availability.

o Time Phasing: Components must be available when needed for production.

MRP ensures timely procurement or production to meet production
schedules.
https://www.smartsheet.com/guide-to-material-requirements-planning

Outputs of MRP

1. Planned Order Schedule: This report contains the supply orders planned to be
released in the future. It is a detailed schedule of when each material or component
should be ordered or manufactured, based on the lead time, to meet the production
requirements.

Eg: If a company produces 100 units of a product per month, the planned order release
report will show how many units of each component are needed to produce 100 units of the
product.

2. Order Release: These are the actual supply orders to be issued by the purchase
department. It includes details like what materials to order, their quantities, and the
suppliers to order from.

Eg: This will include the details of what materials to order, their quantities, and the suppliers
to order from1. For instance, an order release might look like this: “Order 500kg of steel from
Supplier X and 200 litres of paint from Supplier Y”.

3. Changes to Planned Orders (Rescheduling Notices): These notices indicate the

changes in due dates of supply orders which is because of changes in the master
schedule2. They help in adjusting the plan according to the changes in demand or
supply conditions.

Eg: Suppose there is a delay in the delivery of steel from Supplier X. This will affect the
production schedule. The changes to planned orders will reflect this change. It might say
something like "The delivery of steel from Supplier X is delayed by a week. Adjust the
production schedule accordingly"
QnA

What industries use MRP in their regular operations?

Material Requirements Planning (MRP) is used in various industries for daily operations.
Here are some of them:

1. Construction - IJM Corporation Berhad

2. Food and beverages- Nestlé

MRP is used in this industries to assist in balancing supply and demand, manage inventory,
schedule production, and deliver the right item on time and at the best possible price. It is an
essential instrument in modern operations management and supply chain optimization.