Material Requirement

Planning

Operations Management

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Meaning

 What items are required?

 How many are required?
 When are they required?

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Meaning

Material Requirements Planning (MRP) is a

type of software based production planning,
which uses an inventory system to organize
different manufacturing processes. Basically
when a company is going to manufacture
something to sell, this software is in charge of
organizing all inventories, while making sure
that all the products and materials are in
place in order for this to be possible.

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Objectives of MRP

 Ensure materials and products are available

for production and delivery to customers.
 Maintain the lowest possible level of
inventory.
 Plan manufacturing activities, delivery
schedules and purchasing activities.
 To improve customer service by meeting
delievery schedules promised and shortening
delivery time.
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Objectives of MRP

 To reduced inventory costs by reducing

inventory levels.
 To improve plant operating efficiency by
better use of productive resources.

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Purpose of MRP

The main purpose of MRP system are to

control inventory levels, assign operating
priorities for items and plan capacity to load
the production system.
(1) Controls Inventory Levels- Order the
right items, order the right quantity and order
at the right time in order to receive the
supplies at the right time.

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Purpose of MRP

(2) Assign operating priorities- Order with the

right due date and keep the due date valid.
(3) Assign capacity to load- Plan for a
complete load, plan an accurate load and
plan for an adequate time to view future load.

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Advantage of MRP

 Reduced inventory
 Reduces idle time
 Ability to price more competitively
 Better customer service
 Better response to market demands
 Reduce sales price

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Advantage of MRP

 Inventory
 Production
 Sales
 Engineering
 Planning
 Purchasing
 Scheduling
 Finance
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Advantage of MRP

 Inventory shortage can be foreseen before

they happen.
 Account and Finance get accurate cost which
allows them to predict cash flows.
 Quality control/Quality assurance can benefit
from an accurate audit trial.

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Disadvantages of MRP

 Cost, acceptance and

involvement,uncertanity with software,time,
trainning.
 The major problem with MRP system is
integrity of data. If there are any errors occur
in MRP the BOM, Master Production
Schedule and output data will also be
incorrect.

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Disadvantages of MRP

 MRP was presented and perceived as a

complete and stand alone system to run a
firm, rather than as part the total system.
 MRP also required a high degree of accuracy
for operation.

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Procedure/Operation of MRP

The entire MRP system is driven by Master

Production Schedule, Bills of Material, and
Inventory Statue File. The MPS, BOM file and
ISF are fed to the MRP computer program to
generate the outputs like Inventory
transactions data, Planned Order Schedule
and Exception Reports.

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Input-Master Production Schedule

The MPS specifies what end products are to

be produced and when. The MPS include-
 Schedule of making finished products

 Company intends to produce

 Combination of Customer Orders and

Demand Forecasts
 What Needs to be Produced

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Input-Bills of Material File

A BOM file, also known as product-structure

file is a computerized file listing all finished
products, the quantity of raw materials, parts,
sub assemblies and assemblies in each
product. The BOM file must be up-to-date
and when the products are designed or
modified with addition/deletion of some parts,
components and subassemblies.

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Input-Inventory Status File

ISF is a computerized file with a

comprehensive record of each and every
material held in inventory. The information
included in this file are materials on hand or
on order, planned order, planned order
releases, allocate material, lot sizes, lead
times, safety stock levels, cost and supplies
of each material.

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Input-Inventory Status File

The Inventory Status File must be kept up-to-

date taking into consideration the daily
inventory transactions such as receipts,
issues, scrapped materials, planned order
and order released.

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Output of MRP

 Planned order schedule which is a plan of the

quantity of each material to be ordered in
each time period. The order may be a
purchase order on the suppliers or production
orders for part and subassemblies on
production department.
 Change in planned order- i.e., modification of
previous planned orders.

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Output of MRP

 Exception reports, which lists items requiring

management attention to control.
 Performance reports regarding how well the
system is operating- e.g., inventory turnover,
% of delivery promises kept and stock out
incidences.
 Planning report such as inventory forecasts,
purchase commitment reports, etc.

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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

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Hubbell Lighting Case

 Before MRP Implementation

•Less than 75% of orders completed on time
 After MRP Implementation
•97% of orders completed on time
•2% of orders completed with 1 to 2 days
after due date

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Summary of MRP

MRP is a…..
 Computerized Inventory Control

 Production Planning System

that…..
 Schedules Component Items as Needed

which will…..
 Track Inventory and…..

Help you in many other aspects of business

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