Module 4

MPS and MRP

Notes

MBA Semester 4
Course – Sales and Operations Planning

Topics Covered
1. Concepts of MPS
2. Concepts of MRP
3. Bill of Materials
4. Capacity requirement planning
5. Relation between MPS, CRP and MRP
6. Solved Questions

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 Module – 4
MPS and MRP
1. Concepts of MPS

What is a master production schedule (MPS)?

A master production schedule (MPS) delineates what products a manufacturer will produce, when
and in what quantities. An MPS links sales demand with manufacturing capacity. The purpose of
master production scheduling is to create a realistic plan that minimizes overstock while
maximizing on-time delivery. Master production scheduling software is an element of
modern advanced planning and scheduling (APS) software.
Master production scheduling is a dynamic process, and MPS software is designed to incorporate
changes in demand or capacity promptly. It extracts actual order and capacity data to ensure that
the MPS is based on the most up-to-date information. MPS calculations account for forecasts,
known and anticipated orders, key capacity constraints, inventory levels, stock buffer
requirements, and demands from departments such as research and development. MPS software
generates the master production schedule automatically but also allows for manual adjustments
to accommodate specific needs or objectives.
Additionally, master production scheduling software allows for planned production volume to be
overridden with scheduled volume. The master production schedule is then recalculated to meet
current conditions.
APS software leverages the master production schedule to support interactive schedule
visualization, in which data can be displayed as stock profile graphs and capacity usage graphs.
Planners using this functionality are able to evaluate alternatives within the schedule. The MPS
can be changed simply by clicking and dragging a point on a stock or capacity graph. Similarly,
production of a particular item may be moved to another production period through the
interactive schedule, and this change will be reflected in the MPS.

The role of a master production schedule in advanced planning and scheduling

Within APS software, the master production schedule interacts with the bill of materials (BOM)
and material requirements planning (MRP 1) to help orchestrate efficient production. Once the
timing and quantities of finished goods to be produced has been determined by the MPS software,
this information is combined with the BOM to determine the type and amounts of materials
needed to fulfil production in accordance with the MPS.
MPS software then provides input data to MRP 1 software regarding the schedule of production
capacity and resources to be used and quantities of finished goods to be produced. MRP 1 software
uses this information to optimize material acquisition, storage and deployment to meet the
requirements of the MPS.
The master production schedule also provides data about the capacity requirements needed to
fulfil current orders, and this information supports manufacturing capacity planning efforts to
maximize actual production output.

Benefits of master production scheduling

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By employing master production scheduling software, manufacturers can ensure that the master
production schedule accurately reflects current demand and capacity, and promptly adjusts to
any changes. As part of a robust APS system, MPS software also accelerates the MPS development
process, freeing planners from the time and effort associated with manual MPS development.

Additional benefits:
 Improved visibility between sales and manufacturing teams
 Reduced equipment idle time
 Reduced overstocks and shortages
 Reduced manufacturing costs

The information needed to develop an MPS

An example of a master production schedule (MPS) for manufacturing is usually a spreadsheet

that contains a production plan consisting list of sales orders, from purchase orders and sales
forecasts, and specific time periods that they will be produced within a 3 to 12-month time
horizon. Data to create the master production plan is pulled from the enterprise resource
planning (ERP), manufacturing execution systems (MES), and material resource planning systems
(MRP) and includes:
 bill of materials specifying what parts and raw materials are needed to produce the
finished goods
 workforce availability
 machinery capacity and availability
 inventory items and inventory status
While most master production schedule examples you will find online are excel documents,
enterprise manufacturers typically dispatch the MPS directly into manufacturing information
systems for execution. They also view the production schedule in a dashboard that calculates and
display the objectives of the master production schedule, including:
 on-time order production and delivery

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  reducing changeovers
 improving machine utilization
 reducing work in process (WIP)
 minimizing production costs

Before we dive into master production schedule examples, it is important to understand

production scheduling and how this process feeds into the creation of a master production
schedule.

Time Fence Control

At each of the stages of a bill of material, the company commits itself to more cost and fewer
alternatives. Therefore the cost of making a change increases and the company’s flexibility
decreases as production gets closer to the delivery time.
But changes to MPS is inevitable and might occur for below reasons

• Customers cancel or change orders;

• Suppliers have problems and miss delivery dates;
• Machines break down or new machines are added, changing capacity;
• Processes create more scrap than expected.

A company wants to minimize the cost of manufacture and also be flexible enough to adapt
to changing needs. Changes to production schedules can result in the following:
• Cost increases due to re-routing, rescheduling, extra setups, expediting and build-up of
work-in-process inventory;
• Decreased customer service. A change in quantity of delivery can disrupt the schedule of
other orders;
• Loss of credibility for the MPS and the planning process.
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 Changes that are far off on the planning horizon can be made with little or no cost or
disruption to manufacturing. To help in the decision-making process, companies establish
zones divided by time fences. The zones and time fences are

Release Time Fence

Release time fence used to allow automatic release of orders falling within this planning
horizon. For example, a planner may want to automatically create released orders for certain
items when the requirement falls within 1 or 2 days of the current date.

Demand Time Fence (Frozen zone)

It is:
• That point in time inside of which the forecast is no longer included in total demand and
projected available inventory calculations; inside this point, only customer orders are
considered. Beyond this point, total demand is a combination of actual orders and forecasts,
depending on the forecast consumption technique chosen.
• In some contexts, the demand time fence may correspond to that point in the future inside
which changes to the master schedule must be approved by an authority higher than the
master scheduler. Note, however, that customer orders may still be promised inside the
demand time fence without higher authority approval if there are quantities available-to-
promise (ATP). Beyond the demand time fence, the master scheduler may change the MPS
within the limits of established rescheduling rules, without the approval of higher authority.

Capacity and material are committed to specific orders. Since changes would result in
excessive costs, reduced manufacturing efficiency and poor customer service, senior
management’s approval is usually required to make changes. The extent of the frozen zone is
defined by the demand time fence. Within the demand time fence, demand is usually based
on customer orders, not forecast.

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 Planning time fence (Slushy zone):

Capacity and material are committed to less extend. This is an area for trade-offs that must
be negotiated between marketing and manufacturing. Materials have been ordered and
capacity established; these are difficult to change. However, changes in priorities are easier
to change. The extent of the slushy zone is defined by the planning time fence. Within this
time fence the computer will not reschedule MPS orders. Changes inside the planning time
fence must be made manually by the master scheduler.

Outside the planning time fence, customer orders may be booked and changes to the master
schedule can be made within the constraints of the production plan.

Liquid zone

Any change can be made to the MPS as long as it is within the limits set by the PP. Changes
are routine and are often made by the computer program.

2. Concepts of MRP
Material Requirements Planning (MRP)

Material Requirements Planning (MRP) is a computer-based production planning and inventory control
system. MRP is concerned with both production scheduling and inventory control. It is a material control
system that attempts to keep adequate inventory levels to assure that required materials are available
when needed. MRP is applicable in situations of multiple items with complex bills of materials. MRP is not
useful for job shops or for continuous processes that are tightly linked.

The major objectives of an MRP system are to simultaneously:

1. Ensure the availability of materials, components, and products for planned production and for customer
delivery,
2. Maintain the lowest possible level of inventory,
3. Plan manufacturing activities, delivery schedules, and purchasing activities.

MRP is especially suited to manufacturing settings where the demand of many of the components and
subassemblies depend on the demands of items that face external demands. Demand for end items are
independent. In contrast, demand for components used to manufacture end items depend on the demands
for the end items. The distinctions between independent and dependent demands are important in
classifying inventory items and in developing systems to manage items within each demand classification.
MRP systems were developed to cope better with dependent demand items.

The three major inputs of an MRP system are the master production schedule, the product structure records,
and the inventory status records. Without these basic inputs the MRP system cannot function.

The demand for end items is scheduled over a number of time periods and recorded on a master
production schedule (MPS). The master production schedule expresses how much of each item is wanted
and when it is wanted. The MPS is developed from forecasts and firm customer orders for end items, safety
stock requirements, and internal orders. MRP takes the master schedule for end items and translates it

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into individual time-phased component requirements.

The product structure records, also known as bill of material records (BOM), contain information on every
item or assembly required to produce end items. Information on each item, such as part number,
description, quantity per assembly, next higher assembly, lead times, and quantity per end item, must be
available.

The inventory status records contain the status of all items in inventory, including on hand inventory and
scheduled receipts. These records must be kept up to date, with each receipt, disbursement, or withdrawal
documented to maintain record integrity.

MRP will determine from the master production schedule and the product structure records the gross
component requirements; the gross component requirements will be reduced by the available inventory
as indicated in the inventory status records.

MRP Computations

We will illustrate MRP computations through examples.

Example 1 Suppose you need to produce 100 units of product A eight week from now, where product A
requires one unit of product B and two units of product C, while product C requires one unit of product D
and two units of product E. How many units of each type do you need? In this example it is easy to compute
the requirements of each item to produce 100 units of product A: Req(B) = 100, Req(C) = 200, Req(D) =
200, Req(E) = 400.

Suppose further that the lead-times for the products are as follows: Product A, four weeks, product B three
weeks, product C two weeks, products D and E one week each. Since the production lead-time for product
A is four weeks, we must have products B and C available at the end of week four. Since product B has a
lead time of three weeks, we need to release the production of product B by the end of the first week.
Similarly, product C need to be released for production at the end of week two, while products D and E
must be released for production at the end of week one.
A material requirements plan has been developed for product A based on the product structure of A and
the lead-time needed to obtain each component. Planned order releases of a parent item are used to
determine gross requirements for its component items. Planned order release dates are simply obtained
by offsetting the lead times.

The computations and steps required in the MRP process are not complicated. They involve only simple
arithmetic. However, the bill-of-materials explosion must be done with care. What may get complicated is
the product structure, particularly when a given component is used in different stages of the production of
a finished item.

The Level of an Item

To form a useful bill of material matrix it is convenient to order the items by levels. The level of an item is
the maximum number of stages of assembly required to get the item into an end product.

Example 2 Consider a system with two end items, item 1 and item 2.

Item 1 requires two units of item A and one unit of item C.

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Item 2 requires one unit of item B, one unit of item D and three units of item E. Item A requires one unit of
item B and two units of item F.

Item B requires two units of item C and one unit of item E. Item C requires one unit of item F and three
units of item G. Item D requires two units of item B and one unit of item C.

The levels of the items are:

Level 0: Items 1 and 2. Level 1: Items A and D. Level 2: Item B.

Level 3: Items C and E. Level 4: Items F and G.

An Outline of the MRP Process

Starting with end items the MRP process goes through the following steps
1. Establish gross requirements.
2. Determine net requirements by subtracting scheduled receipts and on hand inventory from the
gross requirements
3. Time phase the net requirements.
4. Determined the planned order releases
Table 1: MRP Table
Week 1 2 3 4 5 6 7
Gross requirements
Scheduled receipts
Net requirements
Time-phased net req
Planned order
releases
The planned order releases aggregated over all the end items will result in the gross requirements for level
one items, the gross requirements for this items are then netted and time phased to deter- mined their own
order releases. The process is continued until all the items have been exploded. Table 1 shows a typical
MRP table.

Example 3 MRP computations are shown in Table 2 where the lead-time is two weeks. Here the planned
releases were obtained by solving a Wagner-Whitin problem with time-varying demand. More often,
however, MRP will plan releases in a lot-by-lot fashion.

Table 2: Standard MRP Tab

Week 1 2 3 4 5 6 7
Gross requirements 10 15 25 30 45 20 30
Schedule receipts 10 25
Net requirements 15 30 45 20 30
Time-phased net req 15 30 45 20 30
Planned order 45 0 45 50
releases

Advantages and Disadvantages of MRP

Pros
 Materials and components are available when needed

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  Minimized inventory levels and associated costs
 Reduced customer lead times
 Increased manufacturing efficiency
 Increased labor productivity

Cons
 Heavy reliance on input data accuracy
 Expensive to implement
 Lack of flexibility in the production schedule
 Tendency to hold more inventory than needed
 Less capable than an overall ERP system

What Are the 3 Main Inputs for MRP?

The three basic inputs of an MRP system include the Master Production Schedule (MPS), Inventory Status
File (ISF), and Bill of Materials (BOM).

How Does MRP Benefit a Business?

MRP ensures that materials and components are available when they're needed, inventory levels are
optimized, manufacturing efficiency is improved, and customer satisfaction increases.

What Are the Outputs of an MRP System?

Using required inputs, the MRP calculates what materials are needed, how much is needed to complete a
build, and exactly when materials are needed in the build process.
This allows businesses to use just-in-time (JIT) production, scheduling production based on material
availability. This minimizes inventory levels and businesses can move materials through the
manufacturing process efficiently.

3. Bill of Materials

What Is a Bill of Materials (BOM)?

A bill of materials (BOM) is an extensive list of raw materials, components, and instructions
required to construct, manufacture, or repair a product or service. A bill of materials usually
appears in a hierarchical format, with the highest level displaying the finished product and the
bottom level showing individual components and materials.
There are different types of bills of materials specific to engineering used in the design process;
they're also specific to the manufacturing used in the assembly process.
KEY TAKEAWAYS
 A bill of materials (BOM) is a centralized source of information containing a list of items
used to manufacture a product and the instructions on how to do so.

 Often shown in a hierarchical way, a bill of materials (BOM) lists the finished product at
the top, down to individual components and materials.

 Bills of materials (BOMs) can be presented as an explosion display or an implosion display.

 The two main types of bills of materials (BOMs) are manufacturing bills of materials
(BOMs) and engineering bills of materials (BOMs).

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Items included in a BOM are the part number, part name, quantity, unit of measurement, assembly
references, method of parts construction, and additional notes.

Bills of Materials (BOMs) Displays

A BOM displays its information in one of two ways: an explosion display or an implosion display.
A bill of materials (BOM) explosion displays an assembly at the highest level broken down into its
individual components and parts at the lowest level, while a BOM implosion displays the linkage
of individual parts at the lower level to an assembly at the higher level.

For example, a computer is exploded into hard drives, computer chips, random access memory
panels, and processors. Each processor is exploded into an arithmetic unit, a control unit, and a
register. The requirements for the arithmetic unit, control unit, and register are imploded into the
requirements for the processor, which are imploded into the requirements for the entire
computer.

Types of Bills of Materials (BOMs)

A BOM list is necessary when building a product and ordering replacement parts, and reduces
possible issues if product repairs are required. It helps to plan for acquisition orders and reduces
the possibility of errors. The two main types of BOMs are engineering BOMs and manufacturing
BOMs.

An engineering bill of materials defines the design of the finished product. It includes all
alternative and substitute part numbers and parts contained in the drawing notes. Every line of
the bill of materials (BOM) includes the product code, part name, part number, part revision,
description, quantity, unit of measure, size, length, weight, and specifications or features of the
product.
The engineering BOM is often organized by engineers based on a computer-aided design (CAD)
drawing. For a finished product, there may be more than one engineering BOM created. This is a
part of product lifecycle management.

A manufacturing bill of materials (BOM) comprises all the assemblies and parts required to
construct a finished item ready to be shipped. It also incorporates the packaging materials
required to send the product to the customer. It contains processes that require execution on the
product prior to completion and stores all the information required for manufacturing activities.

4. Capacity Requirement Planning

What Is Capacity Requirements Planning (CRP)?

Capacity requirements planning (CRP) is the process of discerning a firm's available production
capacity and whether it can meet its production goals. The CRP method first assesses the
company's planned manufacturing schedule. Then, capacity requirements planning weighs this
schedule against the company's actual production capabilities to see if the current capacity can
successfully meet the existing production schedule.

KEY TAKEAWAYS

 Capacity requirements planning (CRP) is the process of discerning a firm's production

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 capacity and whether it can meet its production goals.

 Conducting a CRP analysis is a critical management tool, as it helps a company to know if

it can meet the demand for its product.

 Capacity requirements planning is also the name of an enterprise application—software

that manages the CRP process for a company.

Why Does CRP Matter?

A large part of a company's success is in planning for the future. Without a solid plan, a business
owner may risk encountering unforeseen issues, including those that can affect its bottom line.

Capacity requirements planning has both long- and short-term implications for a firm's success.
In the short term, monthly and quarterly sales numbers are heavily affected by whether the
company is prepared for the regular ups and downs of customer demand. Not being able to meet
customer demand can often mean losing customers to the competition. In the long term, CRP can
help to decide how much a company will invest in its employees, materials, and equipment.

Discrepancies between capacity estimates and the actual production output can result in a
shortage of products or personnel, which could cause long delays in deliveries and even leave
some customers' orders completely unfilled. Poor CRP can also lead to oversupply, in which
unused inventory ties up a company’s revenue and depresses reported earnings.

CRP Procedures

Businesses generally develop their own capacity requirements plans based on individual factors,
including their industry and sector. However, we may broadly categorize CRP into three
rudimentary portions: determining service-level requirements, analyzing current capacity, and
planning for the future.

Determining Service-Level Requirements

A business may divide its work into categories and quantify users’ expectations for how that work
gets done:

 Establishing workloads: Organize workloads according to who is doing the work, the type
of work performed, or the work process.
 Determining the unit of work: Create a definition of satisfactory service for each portion of
work; a workload measures the resources needed to accomplish the work, and a unit of
work measures the quantity of work completed.
 Setting service levels: A service-level agreement (SLA) lays out the acceptable parameters
between provider and consumer.

Analyze Current Capacity

Here are some steps that a business can take to analyse its production systems and their individual
workloads:
 Compare the measurements of items referenced in SLAs with their objectives
 Check the usage of the system's various resources
 Analyse which workloads are the major users of each resource
 Determine where each workload spends its time for insight into which resources take the greatest
portion of response time for each workload
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Plan for the Future
 Base a future plan on forecasted processing requirements to prevent overwhelming the
system.
 Establish the amount of incoming work expected over a period of specific quarters.
 Configure the optimal system for satisfying service levels for this period.

5. Relation between MPS, CRP and MRP

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6. Solved Questions

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