Chapter Two

Materials Planning and Store Administration

2.1 Materials requirements planning (MRP)

 Material requirements planning (MRP) is a computer-based information
system that translates master schedule requirements for end items into
time-phased requirements for subassemblies, components, and raw
materials.
 It is backward scheduling process starts with the identified the
customer requirement in the master schedule.
 It is a means for determining the number of parts, components, and
materials are needed to produce a product based on demand
relationship.
 It basically determine the how much of each item and when it is
needed to complete a specified units of product in a specified time
period. Answer to what type, how many and when itemes are needed.
 So that it provides time scheduling information specifying when each
of the materials, parts, and components should be ordered or
produced.
1
 Independent Vs Dependent Demand
Dependent demand drive MRP.
Independent demand:
• Which is the final end product specified by the end
customer or market survey.
• The subassemblies, parts or components come into it is
independent demand.
• For example to produce one end product T, three units V
and two units of U are required. The requirement of T.
• The dependent demand is caused by demand of higher
level item.
• For example, the demand of tires, wheel and engines are
dependent on the number of automobiles required.

2
 Inputs of MRP
1. Master production schedule
 States which end items are to be produced, when these are
needed, and in what quantities.
 It is time phased plan specifying how many and when the firms
plans to build each end item.
2. Bill of materials(BOM)
 a listing of all of the raw materials, parts, subassemblies,
and assemblies needed to produce one unit of a product.
 Product structure tree
• A visual depiction of the requirements in a bill of materials,
where all components are listed by levels.
• Provides product structure
 Items above given level are called parents
 items below given level are called components or children.
3
 Inputs of MRP
Product structure

Level 0 X

B(2)
Level 1 C

D(3) Level 2 F(2)

E(4) Level E3 E(2)

4
 BOM
3. Inventory records which gives information about number of
units on hand and on order which are scheduled for receipt.
It contains Information about
Gross requirements
Scheduled receipts
Expected amount on hand
Lead time
Lot size policy etc. but these are inputs for MRP.

5
 BOM
Example, a company have received an order of 50units of
product A. The product A which is assembled from 2units of
sub-item D, and one unit of B and C. The sub-item C used in
producing an end item A is in turn made from one unit of D
and E. Moreover, part B is assembled from 2 units of E and
one unit of C. The item C used in producing item B is also
made from one unit of D and E.
Construct product tree or structure for producing an end item
A and how components of each item are required to provide
the ordered quantity.

6
 Inventory record
Inventory record have many data such as on hand inventory,
safety stock and scheduled receipt which are used for MRP.
 on hand inventory is parts or components or subassemblies
which is available in the warehouse.
 Scheduled receipt is quantity of parts it has been already
released an order and it is going to be arrive on the due date.
 Projected available balance is the difference of sum of in hand
and scheduled received , and safety stock.

Projectedon-
Projected on- Inventory
Inventory
hand
hand on-hand
on-hand Scheduled//
Scheduled Gross
Gross
Inventoryatatend
end = atatend
endof
of planned requiremen
Inventory = + planned - requiremen
ofperiod
of periodtt periodtt--
period receiptsinin
receipts ts in
ts in period
period
11 periodtt
period tt 7
 Cont.
 Gross Requirements is the actual / estimated demand, in
case of final product. For subcomponent, it is based on the
quantity required to produce parent item.
• Scheduled receipts
• Projected available balance
• Net requirements
 Planned order receipt is the quantity it going to be
received.
 Planned order released is the quantity it going to be order
by considering lead time.

8
 MRP steps

 In MRP, information on inventory record, master schedule and bill of

materials are used.
 Working from the top level downward in the bill of materials ,
requirements from the parent item are used to calculate the
requirements for the components.
 Consideration on hand balance and orders that are scheduled for
receipt in the future should be taken to calculate net requirements.
Step 1:
1. The requirements for level 0 items, typically referred to as end items,
are retrieved from the master schedule. This requirement is gross
requirement.
2. Next, use IOH and scheduled received in future to calculate net
requirement.
3. Using net requirement , calculate when orders should be received to
meet due date requirements.
9
 MRP steps

4. Since there is actually a lead time associated with each

orders, find a schedule for orders to release the orders.
5. MRP for level 0 is completed, repeat for the rest levels.

10
 Example
Assume you are a manufacturer of end product A and B. And
you have inventory status as shown in the table below.

Item IOH Safety Lead time On order

stock
A 50 0 2weeks -
B 60 0 2weeks 10(week 5)
C 40 5 1week -
D 200 20 1week 100(week4)

And you are asked to delivery units of 1250, 470 and 270 of A,
B and D respectively in week 9 given that the following
product structure.

11
The product structure of product A and B.

12
 Solution

For Product A, given there are 50 units on hand and

1250units are required in week 9. There is product on
orders, pj. availabale balance is 50units. Since the LT is
2weeks you have to offset order receipt by 2, for planning
order release.
 The MRP will  look like this weeks
item   4 5 6 7 8 9
A gross requirement           1250
LT =2weeks schduled received            
IOH=50units PJ.available balance 50 50 50 50 50 50
Safety stock=0 net requiremnt           1200
order qty=L4L planned order receipts           1200
  planned order releases       1200   
13
For B, we have 10 units, they will be received in week 5 and
60 units IOH. 470units of B should be received in week 9.
So, there will be 60 for the first four weeks, but starting from
week 5, there will be 70 units carried until week 9.
We ordered 470units and projected available balance is
70units, we need to order and receive 400units. Since the LT
is 2weeks you have to offset order receipt by 2, for planning
order
  release.    weeks
    4 5 6 7 8 9
B gross requirement           470
LT =2weeks schduled received   10       
IOH=60units PJ.available balance 60 70 70 70 70 70
Safety stock=0 net requiremnt           400
order qty=L4L planned order receipts           400
  planned order releases       400   
14
• For C, you have 40 IOH and put 5units in safety stock, so
you left 35 units.
• In addition to this , as you can see from BOM, one unit of C
is used for both A and B. To produce 1200units of A and
400units B in week 7, 1600units of C are required.
• You have 35 units until week 7. so the net requirements in
week 7 are 1565units of C.
• but, you’ll order 2000units since there is restriction on
order quantity i,e. 2000units.
    weeks  
    4 5 6 7 8 9
C gross requirement       1600   
LT =1weeks schduled received            
IOH=40units PJ.available balance 35 35 35 35 435 435
Safety stock=5units net requiremnt       1565   
order qty=2000units planned order receipts       2000   
  planned order releases     2000     

15
 Cont. solution
In addition the same procedure for C, 270units of D is ordered by the
end user and it is used as components for A, B and C based on the
quantity put in parentheses.
1 unit of D is used to produce a unit of A and 2units for B and C.
• you need 1200units of A in week 7, 1200units of D.
• you need 400units of B in week 7; 800units of D.
• you need 2000units of C in week 6; 4000units of D.
• 180units of D IOH and 100units of D received in week 4; 280units
will carried in week 5 and 6. Net requirement in week 6 is
3720(4000-280) to meet requirement for C.
• Since you can only order 5000units, you will receive 5000unts in
week 6 and release 5000units orders in week8 so that you will have
1280units in week7. But you have 1200 demand in week 7. so you
left 80units in week 8.
• Again you have to provide 270units of D for direct delivery in week
9. here you will have 80 available in week 8. the net requirement in
week 9 is 190units of D. You will receive 5000units of D meet
190units requirement in week9 and release order in week 8 since
the LT is 1week.
16
 • The final MRP for D is as shown, since D is directly used for
A at the week 7.
 item     weeks

    4 5 6 7 8 9
2*2000( 1200(
D gross requirement     C&B) A)  270

LT =1weeks schduled received 100         

IOH=200units PJ.available balance 180 280 280 1280 80 80

Safety stock=20units net requiremnt     3720    190

order qty=5000units planned order receipts     5000    5000

  planned order releases   5000    5000 

17
 The whole MRP
Item 4 5 6 7 8 9
A gross requir. 1250
Lt =2weeks schedule received
IOH =50 pj.available balance 50 50 50 50 50 50
net requirement 1200
planned order receipt 1200
planned order release 1200
weeks
Item 4 5 6 7 8 9
B gross requir. 470
Lt =2weeks schedule received 10
IOH =50 pj.available balance 60 60 70 70 70 70
net requirement 400
planned order receipt 400
planned order release 400
weeks
Item 4 5 6 7 8 9
C gross requir. 1200+400=1600
Lt =2weeks schedule received
IOH =40 pj.available balance 35 35 35 35
order qty=2000
net requirement 1565 435 435
safety stock=5
planned order receipt 2000
planned order release 2000
weeks
Item 4 5 6 7 8 9
D gross requir. 2*2000 1200 270
Lt =2weeks schedule received 100
IOH =200 pj.available balance 180 280 280 1280 80 80
order qty=5000
net requirement 3720 1200 190
safety stock=20
planned order receipt 5000 5000
planned order release 2000 5000
18
 2.2 Just In Time (JIT)
 JIT philosophy means getting the right quantity of goods at the
right place and the right time.
They are not done too early (which would leave products and
materials hanging around until they were actually needed) and
they are not done too late (which would give poor customer
service).
 Items stock for later use is considered as waste in JIT
perspective.
 JIT looks for ways to eliminate wastes.
 JIT is an all-encompassing philosophy found on eliminating
waste.
19
 JIT ….Cont.
JIT needs considerable changes to the way that organizations
work and to management thinking.
JIT is much more than a way of time tabling operations.
The supporters describe it as ‘a way of eliminating waste’ or
‘a way of enforced problem solving’.
In the traditional view, having stock provides an essential
buffer between operations, and managers asking how to
provide this buffer at minimum cost.
JIT changes the main question of inventory control to, ‘How
can we eliminate the need for stocks?
JIT says that the answer to this comes by solving the
problems that makes stock is necessary. If stocks are held to
cope with variations in supply, the answer is to find ways of
reducing the variation. If stocks are held to cover uncertain
demand, the answer is to remove the uncertainty.
20
By co-ordinating supply and demand so that they are closely
matched, JIT can eliminate the need for stocks.
JIT sees an organization as having a series of problems that hinder
efficient operations.
These problems includes:
 long lead times,
 unbalanced operations,
 constrained capacity,
 equipment breakdowns,
 defective materials,
 interrupted operations,
 unreliable suppliers, too much paperwork and too many
changes.
Managers try to overcome the effects of these problems by
holding large stocks, buying extra capacity, keeping back-up
equipment, employing ‘trouble-shooters’, and so on.
21
A much more constructive approach is to identify the real
problems and solve them.
JIT approaches:
Reduce LT by avoiding non value adding
Find root cause fix it
Zero defect
Co-ordination b/n supplier and demand etc.
JIT focuses:
 On improving every operation- Continuous improvement
– Kaizen.
 Visibility – all problems must be visible to be identified and
solved.
 Flexibility to produce different models/features

22
The three elements of JIT

23
• JIT manufacturing focuses on production system to
achieve value-added manufacturing.
• TQM is an integrated effort designed to improve
quality performance at every level.
• Respect for people rests on the philosophy that human
resources are an essential part of JIT philosophy.
• JIT Manufacturing is a philosophy of value-added
manufacturing.
• Achieved by
 Inventory reduction - exposes problems
 Kanbans & pull production systems
 Small lots & quick setups
 Uniform plant loading
 Flexible resources
 Efficient facility layouts
24
 Benefits of JIT
 Reduction in inventories
 Improved quality
 Shorter lead times
 Lower production costs
 Increased productivity
 Increased machine utilization
 Greater flexibility

25
 Push production system
make to stock
production decisions are based on
forecasts of demand
appropriate when uncertainty about
demand is low
generally not compatible with JIT

26
 Pull production system
• Make to order.
• work is triggered by order from external customer, or
“internal” customer (e.g. last station in line).
• generally compatible with JIT.

27
 Steps of Kanban
1) Worker at B receives empty container tagged with production
kanban from “customer” -> worker B must fill container .
2) Worker at B withdraws required full container of material
from B input area and uses it to produce enough to fill empty
container in step (1).
3) To replenish the empty container in input area, worker at B
sends withdrawal kanban to output area of A.
4) Worker at A attaches withdrawal kanban to a full container in
output (A) and sends to B.
5) Worker at B takes production kanban from full container and
places it on an empty container -> worker A must fill
container.
6) Worker at A removes container of materials from its input
area, and then uses a withdrawal kanban to generate a
request for more material from upstream station.

28
2.3 Introduction to stores and storage method
The function of material storage system is to store materials
for period of time and to permit to access them when
required. The materials stored includes products such as raw
materials, WIP, finished products and rework and scrap;
refuse such as chips, oils used for processing, tools and spare
parts; and office supplies and plant record.
 Many production plants use manual method for storing
and retrieving items stored. This makes the storage system
inefficient, because it does not allow to access and retrieve
many stock keeping units at once.
 The are performance measure to determine and compare
storage system. These are storage capacity, density,
accessibility and throughput and for mechanized and
automated system utilization and reliability.
29
 2.3.1 Storage performance system… cont.
 Storage Capacity:
 measured in two ways:
1. total volumetric space available and
2. Total number of compartments available for items or loads.
Density
 Defined as the volumetric space available for actual storage
relative to total volumetric space in the storage facility. When
making high density, accessibility (ability to take or retrieve the
desired item) of items stored will be less or may impossible. So
there should a trade-off b/n them i,e. density and accessibility.
 Throughput
 Is the hourly rate at which the storage system (1)receives and
puts loads into storage and /or (2) retrieves and delivers loads
to the output station.
30
 Perf. of mechanized and automated
Utilization
 It is defined as the proportion of time that the system is
actually used for performing retrieve and storage
operation compared with the time the system is available.
Reliability
 defined as the proportion of time the system is capable of
operating (not broken down) compared with the normally
scheduled shift hours.

31
 2.3.2 Storage location Strategies
 There are several strategies that can be used to organize
stock in a storage system.
 These storage location strategies affect several of the
performance measures discussed above.
 The two basic strategies are randomized storage and
dedicated storage.
 In randomized storage, items are stored in any available
location in the storage system. In the usual implementation
of randomized storage, incoming items are placed into
storage in the nearest available open location.
When an order is received for a given SKU, the stock is
retrieved from storage according to a first-in-last-out
policy so that the items held in storage the longest are used
to make up the order. It provides high space utilization.
32
In dedicated storage, SKUs are assigned to specific locations
in the storage facility. This means that locations are reserved
for all SKUs stored in the system, and so the number of
storage locations for each SKU must be sufficient to
accommodate its maximum inventory level.
The basis for specifying the storage locations is usually one of
the following:
(1) Items are stored in part number or product number
sequence; (2) items are stored according to activity level, the
more active SKUs being located closer to the input/output
station; or (3) items are stored according to their activity-to-
space ratios, the higher ratios being located closer to the
input/output station. It gives high throughput.

33
 Conventional storage method and equipment
 A variety of storage methods and equipment are available
to store various materials.
 Bulk storage: provides high density and low cost per
square area. It is used to store low turnover, large unit
loads.

34
 Rack system: provide low cost, good density and
accessibility. It is uses palletized loads in warehouse.

35
 Shelve and bins: leads to some stock items not clearly
visible. It provide Storage of individual items on shelves
Storage of commodity items in bins.
 Drawer storage: provides the contents of drawer easily
visible, good accessibility and relatively high cost. It is used
for small tools, small stock items and repair parts.

36
Automated storage system: provides high throughput rates,
facilitates use of computerized inventory control system,
highest cost of equipment and facilitates interface to
automated material handling systems. It is used for WIP
storage, final product in warehousing and distribution center
order picking.
Automated storage system
1. An automated storage/retrieval system (AS/RS) can be
defined as a storage system performs storage and
retrieval operations with speed and accuracy under a
defined degree of automation. AS/RS technology have
been associated with warehousing and distribution
operations.
Three application areas can be distinguished for AS/RS a
systems: (1) unit load storage and handling, (2) order picking,
and (3) work-in-process storage systems.
37
2. Carousel Storage Systems
A carousel storage system consists of a series of bins or
baskets suspended from an over head chain conveyor that
revolves around the long oval rail system. The purpose of the
chain conveyor is to position bins at a load /unload station at
the end of the oval.

38
 The possible objective of automated storage system are:

 To increase storage capacity

 To increase storage density
 To recover factory floor space presently used for storing
work-in-process
 To improve security
 To reduce labor cost and/or increase labor productivity in
storage operations
 To improve safety !n the storage function
 To improve control over inventories
 To improve stock rotation
 To improve customer service
 To increase throughput

39
• At the most sophisticated level automation, the operations
are totally automated, computer controlled, and fully
integrated with factory and/or warehouse operations;
• at the other extreme, human workers control the
equipment and perform the storage/retrieval transactions.
Sizing of AS/RS structure

40
• Each aisle of a 4-aisle ASRS contains 60 storage
compartments in length and 12 compartments in vertical.
All storage compartments are of the same size (x=42in and
y=48in). Height of unit loads z= 36in. Based on the
allowance , a=6in, b=8in and c=10in. Determine :
a. The width, length and height of the AS/RS
b. How many unit load can be stored
Width = 3(x+a)=3(42+6)=144in,
Length =ny(y+b)=60(48+8)=3360in and
Height =nz(z+c)=12(36+10)=552in.

Capacity per aisle= 2*60*12=1440unitloads

With 4 aisles=4*1440=5760unit loads.

41