Material Requirement Planning (MRP I and MRP II)

Chapter 5
MATERIAL REQUIREMENT
PLANNING (MRP I & MRP II)
‘Time and tide wait for no man.’

Geoffrey Chaucer
Industrial Engineering and Management, BME III/II
Course outline
 Introduction
 MRP concept
 Benefits and application
 MRP II (Manufacturing
Resource Planning
 The Japanese approach to
MRP
 Comparing MRP and Just In
Time (JIT) concept.
Industrial Engineering and Management, BME III/I

By: Khem Gyanwali, Thapathali Campus, IOE,TU 2
1. Introduction
Wheeled Coach
 Largest manufacturer of
ambulances in the world
 International competitor
 12 major ambulance designs
 18,000 different inventory items
 6,000 manufactured parts
 12,000 purchased parts

By: Khem Gyanwali, Thapathali Campus, IOE,TU
3
1. Introduction
Wheeled Coach
 Four Key Tasks
 Material plan must meet both the
requirements of the master schedule
and the capabilities of the production
facility
 Plan must be executed as designed
 Minimize inventory investment
 Maintain excellent record integrity

4
1. Introduction
MRP stands for material requirement planning. It is
computer based technique that:
1. Converts master production schedule (MPS) into detailed
schedule for requirement of raw material, component
parts, sub-assemblies and assemblies used in the end
product.
2. It then breaks the material requirements into two parts.
3. Finally, it develops a schedule of order for purchased
materials and produced parts over the planning period
(horizon).
Inputs to MRP
1. Master Production Schedule (MPS)
2. Bill of Material (BOM) file defining the product structure.
3. Inventory status file.
5
2. MRP concepts
Master Production Schedule

The master production schedule is based on the
accurate estimate of demand which consists of
two parts, an amount determined from the
orders received and an estimate of the uncertain
demand for the period obtained by statistical
forecasting.
MPS is a list of end products to be produced.
It contains item name (and code), quantity to be
produced, and time for completing the
production.
6
2. MRP concepts
The Planning Process
Production Marketing Finance
Capacity Customer Cash flow
Inventory demand
Procurement Human resources

Supplier Manpower
performance planning
Management Engineering
Return on Aggregate Design
investment production completion
Capital plan
Change
production
Master production plan?
schedule

7
2. MRP concepts
The Planning Process
Master production
schedule Change
master
Change production
requirements? Material schedule?
requirements plan
Change capacity?
Capacity
requirements plan
No Is capacity Is execution
Realistic? plan being meeting the
met? plan?
Yes
Execute capacity
plans
Execute
material plans

8
2. MRP concepts
MPS Examples
For Nancy’s Specialty Foods
Gross Requirements for Crabmeat Quiche

Day 6 7 8 9 10 11 12 13 14 and so on
Amount 50 100 47 60 110 75
Gross Requirements for Spinach Quiche

Day 7 8 9 10 11 12 13 14 15 16 and so on
Amount 100 200 150 60 75 100

9
2. MRP concepts
Bills of Material
List of components, ingredients, and materials needed to make
product
Provides product structure
Items above given level are called parents
Items below given level are called children
Lead Times
The time required to purchase, produce, or assemble an item
For production – the sum of the order, wait, move, setup, store,
and run times
For purchased items – the time between the recognition of a need
and the availability of the item for production

10
2. MRP concepts
BOM Example
Level Product structure for “Awesome” (A)
0 A
Std. 12” Speaker kit w/

1 B(2) Std. 12” Speaker kit C(3) amp-booster
2 E(2) E(2) F(2) Std. 12” Speaker

booster assembly
Packing box and installation

3 D(2) kit of wire, bolts, and screws G(1) D(2)
Amp-booster
12” Speaker 12” Speaker

11
2. MRP concepts
BOM Example contd…

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 x number of Fs = (2)(100) + (2)(300) = 800
Part E: 2 x number of Bs
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2 x number of Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300

12
2. MRP concepts
Inventory Status File
It is mandatory in MRP to have accurate current data
on inventory status. It provides a computerized list of
records of each material, physically in stock in the
system. There will be only one inventory status for
individual material, even if it is used at different levels
of production or in different end products. It contains
1. Material code
2. Material name
3. Inventory on hand
4. Material on-order (yet to arrive)
5. Customer order for the product.

13
2. MRP concepts
Time-Phased Product Structure
Must have D and E
Start production of D completed here so
production can begin on
B
1 week
2 weeks to
D produce
B
2 weeks
E
2 weeks
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | | |
1 2 3 4 5 6 7 8
Time in weeks

14
2. MRP concepts
MRP Structure
Data Files Output Reports
MRP by period
BOM Master report
production schedule
MRP by date
report
Lead times
(Item master file) Planned order
report
Inventory data
Purchase advice
Material
requirement
planning programs
(computer and
software) Exception reports
Purchasing data
Order early or late or
not needed
Order quantity too

small or too large

15
2. MRP concepts
Working of MRP (MRP processing)

1. Consolidating period by period requirements
for end products.
2. Part explosion.
3. Offsetting.
4. Finding gross requirement for each
component/raw material.
5. Determining net requirement.
6. Procurement schedule and lot sizing.

16
3. Benefits and limitations
Benefits of MRP
1. Reduction in work-in-progress.
2. Priority benefits.
3. Effective utilization of capacity.
4. Improved customer service.
5. Reduction in lead time.
6. Reduction in past due orders.
7. Increased productivity.
8. Increased inventory turn over.
17
3. Benefits and limitations
Limitations of MRP
1. Incorrectness in suppliers lead time or in
manufacturing lead time causes incorrectness in MRP
calculations.
2. Highly computational intensive approach of MRP
causes overdependence on MRP outputs. Any
inaccuracy causes failure of MRP to a large extent.
3. The data used in MRP system should be reliable.
Unreliable inventory data can cause a failure of MRP
system.
4. Bill of material and inventory status should be
computerized.
5. The product structure must be assembly oriented.

18
4. MRP II (Manufacturing Resource Planning)
 Once an MRP system is in place, inventory data can be augmented

by other useful information
 Labor hours
 Material costs
 Capital costs
 Virtually any
resource
 System is generally called MRP II or Material Resource Planning
“A method for the effective planning of all resources of a manufacturing

company” (APICS def.)
– Financial accounting incorporated
– Sales
– Operations Planning
– Simulate capacity requirements of different possible Master
Production Schedules

19
4. MRP II (Manufacturing Resource Planning)
Week
5 6 7 8
A. Units (lead time 1 week) 100
Labor: 10 hours each 1,000
Machine: 2 hours each 200
Payable: $0 each 0
B. Units (lead time 2 weeks,
2 each required) 200
Labor: 10 hours each 2,000
Machine: 2 hours each 400
Payable: Raw material at $5 each 1,000
C. Units (lead time 4 weeks,
3 each required) 300
Labor: 2 hours each 600
Machine: 1 hour each 300
Payable: Raw material at $10 each 3,000

20
4. The Japanese approach to MRP
Just In Time (JIT)
JIT is a Japanese production management philosophy which
has been applied in practice since the early 1970s in many
Japanese manufacturing organizations.
Just-In-Time production is defined as a ‘philosophy that
focuses attention on eliminating waste by purchasing or
manufacturing just enough of the right items just in time’.
Some observers have called JIT hand-to-mouth approach to
production. It aims at having the right part at precise right
time and in the right quantity to go into assembly.
Other names of JIT are Stockless production, Continuous
flow manufacturing, Toyota system, Zero inventory, Loan
production.

21
Characteristics of JIT management
1. Pull system of production.
2. The degree of time lapsed between materials arrivals,
processing and assembly of the final product for
consumers is minimized.
3. JIT allows a reduction in raw materials, work-in-progress
and finished goods inventories,.
4. The JIT production techniques uses containers for holding
parts. This allows easy identification and monitoring of
inventory levels.
5. An element of JIT production requires that the plant be
clean, i.e. there should be no wastes present which may
hinder production.
6. JIT production involves the use of ‘visible signals’ to
display the status of machinery.
22
Elements of JIT
1. Eliminating waste.
2. Continuous improvement.
3. People involvement and employee
empowerment.
4. Total Quality Management.

23
Major tools and techniques of JIT
1. A Kanban system is a system of inventory and production control
(pull inventory system) which uses Kanbans as the principal
information transmission device. Kanban is a Japanese word
meaning signal. A Kanban is a card or a tag usually attached to
work-in-progress parts and it is used to facilitate the proper
movement of these parts. This movement may be within the
same manufacturing plant or between plants.
Basically there are two types of Kanbans:

• 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.

24
2. Set up time reduction

- (Single Minute Exchange of Dies (SMED))
3. Lean production – 5s
- (Siero - remove, Seition – organize, Sieso –
keep clean, Seiketsu – standardize, Shit suke –
respect the rules)
4. Poka –Yoke (Full Proofing)
- error free
5. Quality at the source

25
5. Comparing MRP and Just In Time (JIT) concept
MRP incorporates changes to orders into its scheduling

process to produce a dynamic production schedule.
MRP embraces the concept of dependent demand: for
example, if production of finished product A requires
three units of product B, and production of product B
in turn requires four units of product C and six of
product D, then a production level of a specific number
of units of product A requires all the corresponding
units of products B, C, and D to reach completion.
In contrast, JIT is a manufacturing process that

responds to actual orders. It relies on the timely
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.
27
Industrial Engineering and Management, BME III/II 28

Material Requirement Planning (MRP I and MRP II)

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Chapter 5

‘Time and tide wait for no man.’

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Master Production Schedule

Procurement Human resources

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Gross Requirements for Crabmeat Quiche

Gross Requirements for Spinach Quiche

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Std. 12” Speaker kit w/

2 E(2) E(2) F(2) Std. 12” Speaker

Packing box and installation

12” Speaker 12” Speaker

Industrial Engineering and Management, BME III/I

BOM Example contd…

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Order quantity too

Industrial Engineering and Management, BME III/I

Working of MRP (MRP processing)

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

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

“A method for the effective planning of all resources of a manufacturing

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Industrial Engineering and Management, BME III/I

Basically there are two types of Kanbans:

Industrial Engineering and Management, BME III/I

2. Set up time reduction

Industrial Engineering and Management, BME III/I

MRP incorporates changes to orders into its scheduling

In contrast, JIT is a manufacturing process that

An advantage of MRP is its ability to successfully organize

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