basic knowledge about Materials requirement planning

1. MRP
Supply Chain Management
Presentation
on
By:
Hassan Ali (11IN53)
Assigned by:
Dr. Anwaruddin Tanwri
Department of Industrial Engineering & Management
Mehran University of Engineering & Technology,
Jamshoro

2. Outline
MRP History
Introduction to MRP
Objectives of MRP
Inputs/Requirements to MRP
MRP Example
Benefits of MRP
Drawbacks of MRP
Industry Applications

3. History
 Till early1960’s reorder point (ROP) systems was
used by organizations.
 A predefined level of components is used to
Reorder.
 Not actually when needed.
 Results in high inventory.
 In late 1960’s several production and planning
software systems were made and MRP was one of
them.

4. Materials requirements planning (MRP)
 Computer-based information system for ordering and
scheduling of dependent demand inventories (such as
raw materials, component parts, and subassemblies
that will be used in the production of a finished
product).
 It is a production planning process that starts from the
demand for finished products (independent demand)
and plans the production step by step of
subassemblies and parts (dependent demand).
 MRP is a means for determining the number of parts,
components, and materials needed to produce a
product.
 MRP provides time scheduling information specifying
when each of the materials, parts, and components
should be ordered or produced.

5. Independent Demand v/s Dependent Demand
Independent Demand Dependent Demand
◦ Is the demand for
finished products.
◦ Does not depend on
the demand of other
products.
◦ Needs to be
forecasted.
◦ Is the demand derived
from finished products.
◦ Is the demand for
component parts based
on the number of end
items being produced
and is managed by the
MRP system.

6. Objectives of MRP
“getting the right materials to the right place at the right
time”.
Thus, MRP is designed to answer three questions:
◦ what is needed?
◦ how much is needed?
◦ and when is it needed?
◦ The art of balancing supply and demand is critical
to any organization.
◦ The MRP is a powerful planning tool that enables
organization to satisfy customer requirements,
while maintaining optimal inventory levels.

7. Overall View of the Inputs to a Standard MRP Program
and the Reports Generated by the Program

8. MR
P
Master
Productio
n
Schedule
Bill of
Materials
Inventory
Record
files
Main inputs/Requirements to MRP

9. Master Production Schedule
• The MPS is a time-phased plan of finished products
that will meet the demand on time, within the
organization’s capacity.
• The master production schedule expresses,
 What we intend to make?
 How much we intend to make?
 When we intend to make?
• The CP checks to make sure the scheduled work
load profile is feasible.

10. BOM (Bill of Materials)
• A list of subassemblies, components, and raw
materials, and their respective quantities required to
produce specific end items.
• The bill of Materials file contains the complete
product description, listing materials, parts, and
components but also the sequence in which the
product is created.
• The BOM file is often called the product structure
file or product tree because it shows how a product
is put together. It contains the information to identify
each item and the quantity used per unit of the item
of which it is a part.

11. BOM Example
A(2) B(1)
D(5)C(2)
X
C(3)

12. Inventory records file
• Computerized record-keeping system for the
inventory status of all subassemblies, components,
and raw materials.
• The MRP program accesses the status segment of
the file according to specific time periods. These
files are accessed as needed during the program
run.

13. Primary MRP Reports
• Planned orders to be released at a future time.
• Order release notices to execute the planned
orders.
• Cancellations or suspensions of open orders due to
cancellation or suspension of orders on the master
production schedule.
• Inventory status data.

14. Secondary MRP Reports
• Planning reports, for example, forecasting inventory
requirements over a period of time.
• Performance reports used to determine agreement
between actual and programmed usage and costs.
• Exception reports used to point out serious
discrepancies, such as late or overdue orders.

15. A(2) B(1)
D(5)C(2)
X
C(3)
Item On-Hand Lead Time (Weeks)
X 50 2
A 75 3
B 25 1
C 10 2
D 20 2
Requirements include 95 units (80 firm orders and 15
forecast) of X in week 10
MRP Example

16. A(2)
X
week 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
It takes 2
A’s for
each X

17. Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
B(1)A(2)
X
It takes 1
B for each
X

18. A(2) B(1)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
It takes 3 C’s
for each A

19. A(2) B(1)
C(2)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
It takes 2
C’s for
each B

20. A(2) B(1)
D(5)C(2)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
It takes 5 D’s
for each B

21. MRP 21
Safety stocks in MRP systems
 Need for safety stocks:
 Variations in demand due to end-item forecast
errors and inventory errors
 Variations in supply – both lead-times and
quantities
 Since demand is not random, traditional statistical
techniques do not apply.
 Options to provide safety factors:
 Fixed quantity buffer stocks
 Safety lead-time
 Increase gross requirements

22. MRP 22
Safety stocks in MRP systems (cont.)
 Fixed quantity buffer stocks
 Good rule of thumb: Set buffer = max. demand likely
in a single period
 Never generate order solely to replenish buffer
stocks
 Safety time method
 Simply order early
 Distorts LTs and priorities
 Better than buffer stocks for items with infrequent
demand
 Also better for purchases outside company
 Increase in gross requirements
 Should be done at end item level only so that
 Components available in matched sets
 Safety stocks are not duplicated at different levels

23. Benefits of MRP
 To minimize inventory levels.
 To minimize the associated carrying costs.
 Track material requirements.
 Compute quantities needed as safety stock.
 Allocate production time among various
products.
 Plan for future capacity needs.
 More competitive pricing.
 Lower selling price.
 Improved customer service.
 Faster response to market demands.
 Increased flexibility to change the master
schedule.
 Reduced setup and tear-down costs.
 Reduced idle time.

24. Drawbacks Of MRP
 It relies upon accurate input information.
 Wrong inputs may results in missing parts and
excessive order quantities.
 It is time consuming.
 It is costly to implement

25. Industry Application and Expected Results