MATERIALS REQUIREMENT

PLANNING - I

DR. MURALI KRISHNAMURTHY

Material Requirement Planning (MRP-1)

Types Of Techniques

PUSH PULL

MRP1 JIT
MRP2 KANBAN
DRP1
DRP2
HAPPY CUSTOMER. HAPPY
SUPPLIER…..
 Major Problem

 Dependent on Accurate Forecasting

Only Solution…

 Buy ‘Just Enough’ Stock

 Material Requirement Planning
(MRP-1)
 Introduction of MRP in 1960’s by
Dr Joseph Orlicky

 Definition :
MRP is a software based production, planning and
inventory control system used to manage the manufacturing
process.
It is a computer based system in which the given
Master Schedule is exploded with Bills Of Material, into
the required amount of raw material, parts and
subassemblies needed to produce the final products in each
time period of say a week or month (called as “Buckets”)
 MRP 1 - Functions
 Forecasting
 Order, Planning and Control
 Priority Planning and Control
 Planning Capacity Requirement and
Development of Broad Business Plans
 Objectives

 Ensure The Availability of Material Components

and Products For Planned Production and
Customer Delivery.
 Maintain The Lowest Possible Inventory Level.
 Plan Manufacturing Activities, Delivery Schedules
and Purchasing Activities.
 Key Elements Of MRP 1

 Demand Forecasting:-
It is the quantity demanded per year or per unit
time which indirectly helps in knowing quantity to
be supplied.

 Master Production Schedule (MPS):-

MPS is a series of time phased quantities for each
item that a company manufactures. It gives the
details of the products to be manufactured over the
given space of time.
-
 Example of MPS

Forecast requires Material Required

10 desks in May 880 screws
40 handles
240 planks
10 tops and 40 legs
5.55 tubes of glue

20 desks in June 1760 screws

80 handles
480 planks
20 tops and 80 legs
11.1 tubes of glue
  Bills Of Material (BOM):-

BOM is the document generated at design stage. It

gives the details of the structure of the product by
dividing the final assembly into major assemblies and
sub-assemblies. BOM provides details such as part
name, part no., description, quantity required material,
etc.
 Office Desk
Oak Finish
4 drawers

4 drawers Main Desk

Require Requires

88 4 24 1 4 5/9
Metal Screws Handles Planks top legs tube of glue
 Inventory Status File (ISF):-

ISF reports the inventory on hand. It allows the

company to subtract existing inventory from gross
requirements, so net requirements can be ordered.
The ISF also reports on safety stock needs and lead
times for each item.
  MRP Program:-

This is a computer software programme. First, it

explodes the finish product’s demand into gross
requirement for parts. Second, the package
determines net requirements based on the ISF.
Third, it place orders to meet the net quantities
needed and lead times.
 Material Requirements Planning MRP1

Master
Customer orders Production Demand forecast
Schedule

Inventory records
Bill of materials MRP
Material
requirement
planning
Works orders
Purchase orders
Material plans
  Outputs And Reports:-

The MRP 1 package generates many

reports such as action notices,
priority reports, inventory status
information.
 Advantages of MRP 1
 Improved Business Results
 Improved Manufacturing Results
 More Accurate And Timely Information
 Less Inventory
 Less Materials Obsolescence
 Time Phased Ordering Of Materials
 Higher Reliability
 More Responsiveness To Market Demand
 Reduced Production Cost
 Disadvantages
 Increase In Material Acquisition Cost

 Higher Transportation Costs And Higher Unit Cost

 Potential Hazard Of A Production Slowdown Or

Shutdown
 Use Of Standardized Software Packages

 Does not Take Into Account Plant Capacity And

Distribution Capacity

 High Stock-Out Costs.

Major Developments From MRP
 Feedback

 Allocating reserves

 Matching the requirements

 Software extension programmers

 Data accuracy
For Production
 Improved productivity and resource
utilization

 Increased through output

 Better reliability of production plans

For Materials Management
 Better control of inventories

 Improved scheduling

 Productive relationships with suppliers

For Design / Engineering
 Improved design control

 Better quality and quality control

For Financial and Costing
 Reduced working capital for inventory

 Improved cash flow through quicker deliveries

 Accurate inventory records

 Timely and valid cost and profitability

information
Distribution Requirements Planning
(DRP – I)
Distribution Requirements Planning
(DRP I)
 DRP is the application of MRP principles to the
distribution environment. It integrates the, special
needs of distribution. It is a dynamic model which
looks at a time-phased plan of events that affect
inventory.
What is DRP?
 DRP provides the basis for integrating supply chain
inventory information and physical distribution
activities with the Manufacturing Planning and Control
system.
What is DRP?
 Managing the flow of materials between firms,
warehouses, distribution centers.
 DRP helps manage these material flows. Just like MRP
did in Manufacturing.
 Links firms in the supply chain by providing planning
records that carry demand information from receiving
points to supply points and vice versa.
DRP Menu Items
Component Description
Material Master
Inventory Management
Sales Planning, Forecasting and
Demand Management
Purchasing
Materials Requirements Planning
Purpose in DRP
Creates stock items and controlling
elements of items, locations and
policies that are used in the deployment
process.
Tracks inventory availability in all
stock categories and supply and
demand for an item.Also allows for the
physical movement of inventory.
Creates forecasts of customer demand
which results in the creation of
independent requirements at the
distribution center.These independent
requirements are later consumed by
actual customer orders.
Creates quota arrangements that
control the supply relationships in the
network.
Determines net supply and demand
resulting in a proposal for the transfer
of inventory from the plant to the
distribution center.
Marketing Benefits
 Increases service level and decrease customer
complaints.
 Improve inventory coordination.
 Enhances ability to offer customer a coordinated
inventory management service.
Logistical Benefits
 Reduces freight costs.
 Reduces inventory level.
 Decreases warehousing space.
 Reduces customer freight cost.
 Enhances budgeting capitability.
Constraints of DRP
 Inventory planning systems require accurate and
coordinated forecasts for each distribution center.
 Integrated planning is subject to system nervousness
and frequent rescheduling, because of production
breakdowns and delivery delays.
 DRP is not the universal solution for inventory
management.
Distribution Resource planning
(DRP-II)
Distribution Resource planning
 Distribution resource planning [DRP II] is an
extension of DRP I.Distribution resource planning
applies the time phased logic of DRP I to replenish
inventories in multi echelon warehousing
systems.Distribution resources planning extends
DRP I to include the planning of key resources in a
distribution system – warehouse space,
equipments, labors, transport capacity [e.g
trucks,rail cars] and financial flows
 Objectives Of DRP II
The objective of Distribution Resource Planning
are,
 To improve customer service levels by anticipating
customer demand at distribution centers and providing
finished products at the correct location when customer
needs arise.
 To provide an accurate requirements plan for
manufacturing.
 To optimize the distribution of available stock in the
distribution network using the deployment function.
DRP II Provides a framework
Distribution resource planning provides a framework for
determining the need to replenish inventory by:

 Linking market requirements with manufacturing and

demand management.

 Relating current inventory positions and demand forecasts

to production scheduling.

 Matching material supply to manufacturing demand, and

customer demand to product supply.
Factors needed for Implementing DRP II
 Before the use of DRP for planning and deployment, we
must set up a distribution network. A distribution network
represents possible delivery relationships between the
supplying plants and the distribution centers. DRP entails
planning the supply chain from sales planning through
delivery to the distribution centers, assuming there are sales
orders or that sales forecasts are available. The primary aim
of planning is to determine the quantities required on
specific dates,including the lead times of the distribution
lanes. The distribution network defines the normal supply
method for execution.
 CUSTOMERS

DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION

CENTER CENTER CENTER CENTER

DISTRIBUTION DISTRIBUTION
CENTER CENTER

REGIONAL
WAREHOUSE REGIONAL
WAREHOUSE

PLANT WAREHOUSE

FINAL ASSMEBLY
(MANUFACTURING)

SUB ASSEMBLY B SUB ASSEMBLY C SUB ASSEMBLY D

SUB ASSEMBLY A PART C PART D PART E

PART A PART B

RAW MATERIALS
Difference between DRP and MRP
MRP DRP

Scope Inbound logistics Outbound logistics

Guiding factor Guided by production Guided by customer

schedules demand

Control of the firm Under control of the Not under control of

firm the firm

Demand situation Operates in dependant Operates in

demand situation independent demand
situation
Area of operation & Coordinates scheduling Coordinates demand
coordination & integration of between outlets &
materials into finished supply sources
goods

Stage of functioning Controls inventory Controls inventory

until manufacturing & after manufacturing &
assembly is complete assembly of finished
goods
Planning availability of Raw materials Market[retailers] &
stock at? stores,conversion process warehouses
& finished goods store
When to use MRP
 Job Shop Production
 Complex Products
 Assemble-to-Order Environments
 Discrete and Dependent Demand Items
 What can MRP do?
 Reduce Inventory Levels
 Reduce Component Shortages
 Improve Shipping Performance
 Improve Customer Service
 Improve Productivity
 Simplified and Accurate
Scheduling
 Reduce Purchasing Cost
 Improve Production Schedules
 Reduce Manufacturing Cost
 Reduce Lead Times
 Less Scrap and Rework
 Higher Production Quality
What can MRP do?
 Improve Communication  Reduce Overtime
 Improve Plant Efficiency  Improve Supply Schedules
 Reduce Freight Cost  Improve Calculation of
 Reduction in Excess Material Requirements
Inventory  Improve Competitive
Position
Three Basic Steps of MRP
Identifying Requirements
Running MRP – Creating the
Suggestions
Firming the Suggestions
Step 1: Identifying the
Requirements
 Quantity on Hand
 Quantity on Open Purchase Order
 Quantity in/or Planned for
Manufacturing
 Quantity Committed to Existing Orders
 Quantity Forecasted
Step 1: Important Information
MRP is…..
 Company Sensitive
 Location Sensitive
 Date Sensitive
Step 2: Running MRP –
Creating the Suggestions
 Critical Items
 Expedite Items
 Delay Items
 Step 3: Firming the Suggestions

 Manufacturing Orders
 Purchasing Orders
 Various Reports
MRP Inputs
 Product Structure File
 Master Production Schedule
 Inventory Master File
Product Structure File
 Bill of Materials
 The product structure file contains a bill of material for
every item produced. In other words, this file contains
all the component parts for a larger item. For example if
you are producing a car, the component parts for the car
would be the screws, steel, rubber, and so on. Not only
does the product structure contain all the component
parts, it also supplies information for in which order the
product is to be assembled. The MRP system accesses the
product structure file to determine which component
items need to be scheduled.
Master Production Schedule
 Schedule of Finished Products
 Represents Production, not Demand
 Combination of Customer Orders and
Demand Forecasts
 What Needs to be Produced
Inventory Master File
 On-Hand Quantities
 On-Order Quantities
 Lot Sizes
 Safety Stock
 Lead Time
 Past-Usage Figures
MRP Process
 Schedules the Production of all items using an MRP Matrix

MRP Matrix
Item: Low-Level Code:
Lot Size: Lead Time: PD 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
Terms Defined
 Item – name or number for the item being scheduled
 Low-Level Code – the lowest level of the item on the
product structure file
 Lot Size – order multiples of quantity
 Lead Time – the time from when an order is placed to
when it is received
 PD – Past Due Time Bucket, orders behind schedule
Terms Defined
 Gross Requirements – demand for an item by time
period
 Scheduled Receipts – material already ordered
 Projected on Hand – expected ending inventory
 Net Requirements – number of items to be provided
and when
 Planned Order Receipts – net requirements adjusted
for lot size
 Planned Order Releases – planned order receipts
offset for lead times
MRP Outputs
 Manufacturing Orders
 Purchasing Orders
 Various Reports
 The MRP system delivers two main outputs along
with various other reports. The two main outputs
are manufacturing orders which can be released to
shop floors for in-house production and purchasing
orders which are sent to outside suppliers. The
various reports offer suggested changes in previous
plans or existing schedules.
Bill of Materials
Definition
Bill of Materials (BOM)
 A listing of all the subassemblies, intermediates, parts, and
raw materials that go into a parent assembly showing the
quantity of each required to make an assembly.
Definition Explained

 Basically, a bill of material (BOM) is a complete list of the

components making up an object or assembly.
 It is also part of material requirements planning (MRP)
Processes that utilize a BOM
 Production
 Materials planning
 Product costing
 Plant maintenance
How can a BOM be used in your
organization?

 Several software programs are available that store item

information and prepare bill of materials automatically
Types of BOMs
 Static (fixed) bill
 A bill of material for a part that is normally made from the
same components, labor and raw materials.
 Used for standard assemblies, components, and engineer-to-
order customer orders.

 Example:
 A bill of materials for a standard chair
Types of BOMs
 Dynamic (parametric) bill
 A bill of material for a product or part for which size, color,
laminate, and other options can be selected.

 Example:
 A bill of materials for a Dell computer
Types of BOMs
 Single level bill of material
 A bill of material that lists the materials, parts and labor
required to make another part.

 Example:
 A bill of materials to make a Dell computer
Types of BOMs
 Multilevel bill of material
 A bill of material that lists the components, assemblies, and
materials required to make a part, the components, assemblies,
and materials required to make each component and assembly
of the part, and so forth.

 Example:
 A BOM for the battery inside the Dell computer.
Structure of a BOM
What information is on a BOM?
1. Quantity
2. Item ID#
3. Description of Item
4. Cost of Item
5. Total Project Cost
Quantity
 Tells user how many of each part is needed for each project

 Example:
 A chair needs 1 seat, 4 legs, 1 back, and 5 nails.
Item ID #
 Tells us which part to order
 Can be any of the following:
 Catalog number, UPC, or any other identification number.

 Example:
 The chair needs a 2PC seat, 5DR legs, 6TU8 back, and 1 inch
nails.
Description of Item
 Provides a check that the correct item is being ordered.
Cost of Item
 Cost is included to show how much each part is per item
and the total cost of all like parts.

 Example:
 The cost of a leg is $5 per leg. Then the total price of the legs
ordered would be $20 because there are 4 legs.
Total Project Cost
 Shows the total cost of all items and is also the total cost
of the direct materials used in the project.

 Example:
 Seat-$10, Back-$5, Leg-$5 per leg, Nail-$.5 per nail
 Total Cost of a chair = 10 + 5 + 5*4 + .5*5 = $37.50
Benefits of a BOM
 Optimize engineering, planning and purchasing efforts by
providing centralized and up-to-date information in Make-To-
Stock, Repetitive, JIT or Job Shop environments.

 Improve material management by responding to changes in

production.

 Reduce inventory levels and obsolete parts.

 Reduce manufacturing costs.

Benefits of a BOM
 Minimize clerical and engineering efforts by optimizing the tasks
of maintaining and changing multi-level bills.

 What-If capabilities for estimating or quoting.

 Supports variable length part numbers and unlimited descriptive

text.

 Easy methods for accessing part information

BOM Example
Quantity ID# Description Unit Price Total Cost
1 6TU8 Back $5/Unit $ 5.00
4 5DR Legs $5/Unit 20.00
1 2PC Seat $10/Unit 10.00
5 1” Nails $0.50/Unit 2.50

Total Project Cost $37.50

BOM Example
161kV H-Frame Tangent
Quantity Catalog No. Description
2 70-foot Wood Pole
1 DP1-457-156-156 Crossarm Shop Assembly
2 DP1-457-156-156W Crossarm, 3-5/8" x 9-1/2" x
32'-0", Laminated
3 5860-3545 Adjustable Spacer Filling
Assembly, 8-3/4" to 12-3/4“
6 W4104-4S Bolt, Washerhead, 1/2" x 10-
1/2", SN
12 W5050-3S Bolt, Washerhead, 5/8" x 5", SN
1 41058BS Bolt, Bent Double End 7/8" x
8", 2SN, 2MF
2 41058BB Bolt, Bent Machine 7/8" x 6", SN,
MF
BOM Example
Project Bill of Materials
Pine Lake HomeSites
Cost Item Quantity Cost/Item Total $
Site Development
Clearing & Grading 1.00 Each 59,429.00 59,429.00
Paving 1.00 Each 114,549.00 114,549.00
Curb & Gutter 1.00 Each 64,232.00 64,232.00
Sanitary Sewer 1.00 Each 158,810.00 158,810.00
Storm Sewer 1.00 Each 61,277.00 61,277.00
Water 1.00 Each 63,602.00 63,602.00
Entrance 1.00 Each 36,000.00 36,000.00
Power & Street Lighting 1.00 Each 9,300.00 9,300.00
Amenity 1.00 Each 270,000.00 270,000.00
Contingency 1.00 Each 35,000.00 35,000.00
Total Site Development $872,199.00
Screenshots of BOM Software
Screenshots of BOM Software
Hubbell Lighting Case
 Manufactures Industrial Lighting Products
 Good-Quality Products
 Poor at Meeting Due Dates
 Work is Specialized for Each Customer
 Job Shop Environment
 Complex Products
 Hubbell Lighting Case
Before MRP Implementation After MRP Implementation

 Less than 75% of orders  97% of orders completed on

completed on time time
 2% of orders completed
with 1 to 2 days after due
date