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Name: Jai Aivole & Sumit Mehta 
Roll Number: 812 & 840 
Class: T.Y.BMS 
Division: A 
Sydenham College of Commerce and 
Economics 
2014 – 15 
Subject: Elements of Logistics
Material Requirements 
Planning 
Material requirements planning (MRP) is a production 
planning and inventory control system used 
to manage manufacturing processes. Most MRP systems 
are software-based, while it is possible to conduct MRP by 
hand as well. 
An MRP system is intended to simultaneously meet three 
objectives: 
 Ensure materials are available 
for production and products are available for delivery to 
customers. 
 Maintain the lowest possible material and product levels in 
store 
 Plan manufacturing activities, delivery schedules and 
purchasing activities.
History 
Prior to MRP, and before computers dominated industry, Reorder point/reorder-quantity 
(ROP/ROQ) type methods like EOQ (Economic Order Quantity) had been used in 
manufacturing and inventory management. In 1964, as a response to the TOYOTA 
Manufacturing Program, Joseph Orlicky developed Material Requirements Planning (MRP). 
The first company to use MRP was Black & Decker in 1964, with Dick Alban as project 
leader. In 1983 Oliver Wight developed MRP into manufacturing resource planning (MRP 
II).[1]Orlicky's book Material Requirements Planning has the subtitle The New Way of Life in 
Production and Inventory Management (1975). By 1975, MRP was implemented in 700 
companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP 
evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master 
scheduling, rough-cut capacity planning, capacity requirements planning, S&OP in 1983 and 
other concepts to classical MRP. By 1989, about one third of the software industry was MRP 
II software sold to American industry ($1.2 billion worth of software). 
Dependent Demand vs. Independent Demand 
Independent demand is demand originating outside the plant or production system, while 
dependent demand is demand for components. The bill of materials (BOM) specifies the 
relationship between the end product (independent demand) and the components (dependent 
demand). MRP take as input the information contained in the BOM. 
The scope of MRP in manufacturing 
The basic functions of an MRP system include: inventory control, bill of material processing, 
and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is 
used to plan manufacturing, purchasing and delivering activities. 
"Manufacturing organizations, whatever their products, face the same daily practical problem 
- that customers want products to be available in a shorter time than it takes to make them. 
This means that some level of planning is required." 
Companies need to control the types and quantities of materials they purchase, plan which 
products are to be produced and in what quantities and ensure that they are able to meet 
current and future customer demand, all at the lowest possible cost. Making a bad decision in 
any of these areas will make the company lose money. A few examples are given below: 
 If a company purchases insufficient quantities of an item used in manufacturing (or 
the wrong item) it may be unable to meet contract obligations to supply products on 
time. 
 If a company purchases excessive quantities of an item, money is wasted - the excess 
quantity ties up cash while it remains as stock and may never even be used at all. 
 Beginning production of an order at the wrong time can cause customer deadlines to 
be missed.
MRP is a tool to deal with these problems. It provides answers for several questions: 
 What items are required? 
 How many are required? 
 When are they required?... 
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, 
produced internally, that are components of more complex items. 
The data that must be considered include: 
 The end item (or items) being created. This is sometimes called Independent Demand, 
or Level "0" on BOM (Bill of materials). 
 How much is required at a time. 
 When the quantities are required to meet demand. 
 Shelf life of stored materials. 
 Inventory status records. Records of net materials available for use already in stock 
(on hand) and materials on order from suppliers. 
 Bills of materials. Details of the materials, components and sub-assemblies required 
to make each product. 
 Planning Data. This includes all the restraints and directions to produce the end items. 
This includes such items as: Routing, Labour and Machine Standards, Quality and 
Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. 
Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other 
inputs. 
Outputs 
There are two outputs and a variety of messages/reports: 
 Output 1 is the "Recommended Production Schedule" which lays out a detailed 
schedule of the required minimum start and completion dates, with quantities, for 
each step of the Routing and Bill Of Material required to satisfy the demand from the 
Master Production Schedule (MPS). 
 Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates 
that the purchased items should be received into the facility AND the dates that the 
Purchase orders, or Blanket Order Release should occur to match the production 
schedules. 
Messages and Reports: 
 Purchase orders. An order to a supplier to provide materials. 
 Reschedule notices. These recommend cancelling, increasing, delaying or speeding up 
existing orders. 
Problems with MRP systems 
First problem with MRP systems - the integrity of the data. If there are any errors in the 
inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master
production schedule, then the output data will also be incorrect ("GIGO": Garbage In, 
Garbage Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes 
in receiving input and shipping output, scrap not reported, waste, damage, box count errors, 
supplier container count errors, production reporting errors, and system issues. Many of these 
type of errors can be minimized by implementing pull systems and using bar code scanning. 
Most vendors in this type of system recommend at least 99% data integrity for the system to 
give useful results. 
Second problem - systems is the requirement that the user specify how long it will take for a 
factory to make a product from its component parts (assuming they are all available). 
Additionally, the system design also assumes that this "lead time" in manufacturing will be 
the same each time the item is made, without regard to quantity being made, or other items 
being made simultaneously in the factory. 
A manufacturer may have factories in different cities or even countries. It is not good for an 
MRP system to say that we do not need to order some material, because we have plenty 
thousands of miles away. The overall ERP system needs to be able to organize inventory and 
needs by individual factory, and inter-communicate the needs in order to enable each factory 
to redistribute components, so as to serve the overall enterprise. 
This means that other systems in the enterprise need to work properly, both before 
implementing an MRP system and in the future. For example, systems like variety reduction 
and engineering, which makes sure that product comes out right first time (without defects), 
must be in place. 
Production may be in progress for some part, whose design gets changed, with customer 
orders in the system for both the old design, and the new one, concurrently. The overall ERP 
system needs to have a system of coding parts such that the MRP will correctly calculate 
needs and tracking for both versions. Parts must be booked into and out of stores more 
regularly than the MRP calculations take place. Note, these other systems can well be manual 
systems, but must interface to the MRP. For example, a 'walk around' stock intake done just 
prior to the MRP calculations can be a practical solution for a small inventory (especially if it 
is an "open store"). 
The other major drawback of MRP is that takes no account of capacity in its calculations. 
This means it will give results that are impossible to implement due to manpower or machine 
or supplier capacity constraints. However this is largely dealt with by MRP II. 
Generally, MRP II refers to a system with integrated financials. An MRP II system can 
include finite / infinite capacity planning. But, to be considered a true MRP II system must 
also include financials. 
In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by 
including simulation of the master production schedule, thus creating a long-term control. A 
more general feature of MRP2 is its extension to purchasing, to marketing and to finance 
(integration of all the functions of the company); ERP has been the next step.
Solutions to data integrity issues 
Bill of material - The best practice is to physically verify the bill of material either at the 
production site or by un-assembling the product. 
Cycle count - The best practice is to determine why a cycle count that increases or decreases 
inventory has occurred. Find the root cause and correct the problem from occurring again. 
Scrap reporting - This can be the most difficult area to maintain with any integrity. Start with 
isolating the scrap by providing scrap bins at the production site and then record the scrap 
from the bins on a daily basis. One benefit of reviewing the scrap on site is that preventive 
action can be taken by the engineering group. 
Receiving errors - Manual systems of recording what has been received are error prone. The 
best practice is to implement the system of receiving by ASN from the supplier. The supplier 
sends an ASN (Advanced Shipping Notification). When the components are received into the 
facility, the ASN is processed and then company labels are created for each line item. The 
labels are affixed to each container and then scanned into the MRP system. Extra labels 
reveal a shortage from the shipment and too few labels reveal an over shipment. Some 
companies pay for ASN by reducing the time in processing accounts payable. 
Shipping Errors - The container labels are printed from the shipper. The labels are affixed to 
the containers in a staging area or when they are loaded on the transport. 
Production reporting - The best practice is to use bar code scanning to enter production into 
inventory. A product that is rejected should be moved to an MRB (material review board) 
location. Containers that require sorting need to be received in reverse. 
Replenishment - The best replenishment practice is replacement using bar code scanning, or 
via pull system. Depending upon the complexity of the product, planners can actually order 
materials using scanning with a min-max system. 
Next Generation MRP 
Demand Driven MRP 
In 2011, the third edition of "Orlicky's Planning" introduced a new type of MRP called 
"Demand Driven MRP"(DDMRP). The new edition of the book was written, not by Orlicky 
himself (he died in 1986) but by Carol Ptak and Chad Smith at the invitation of McGraw Hill 
to update Orlicky's work. 
Demand Driven MRP is a multi-echelon formal planning and execution technique with five 
distinct components: 
1. Strategic Inventory Positioning - The first question of effective inventory 
management is not, “how much inventory should we have?” Nor is it, “when should 
we make or buy something?” The most fundamental question to ask in today’s 
manufacturing environments is, “given our system and environment, where should we
place inventory to have the best protection?” Inventory is like a break wall to protect 
boats in a marina from the roughness of incoming waves. 
2. Buffer Profiles and Level - Once the strategically replenished positions are 
determined, the actual levels of those buffers have to be initially set. Based on several 
factors, different materials and parts behave differently (but many also behave nearly 
the same). Buffer profiles take into account important factors including lead time 
(relative to the environment), variability (demand or supply), whether the part is made 
or bought or distributed and whether there are significant order multiples involved. 
3. Dynamic Adjustments - Over the course of time, group and individual traits can and 
will change as new suppliers and materials are used, new markets are opened and/or 
old markets deteriorate and manufacturing capacities and methods change. Dynamic 
buffer levels allow the company to adapt buffers to group and individual part trait 
changes over time through the use of several types of adjustments. 
4. Demand Driven Planning - takes advantage of the sheer computational power of 
today’s hardware and software. It also takes advantage of the new demand driven or 
pull-based approaches. When these two elements are combined then there is the best 
of both worlds; relevant approaches and tools for the way the world works today 
AND a system of routine that promotes better and quicker decisions and actions at the 
planning and execution level. 
5. Highly Visible and Collaborative Execution - Simply launching Purchase Orders 
(POs), Manufacturing Orders (MOs) and Transfer Orders (TOs) from any planning 
system does not end the materials and order management challenge. These POs, MOs 
and TOs have to be effectively managed to synchronize with the changes that often 
occur within the “execution horizon.” The execution horizon is the time from which a 
PO, MO or TO is opened until the time it is closed in the system of record. 
These five components work together to greatly dampen, if not eliminate, the nervousness of 
traditional MRP systems and the bullwhip effect in complex and challenging environments. 
In utilizing these approaches, planners will no longer have to try to respond to every single 
message for every single part that is off by even one day. This approach provides real 
information about those parts that are truly at risk of negatively impacting the planned 
availability of inventory. 
DDMRP has been successfully applied to a variety of environments including CTO 
(Configure to Order), MTS (Make to Stock), MTO (Make to Order) and ETO (Engineer to 
Order). The methodology is applied differently in each environments but the five step process 
remains the same. DDMRP is a significant innovation in material planning and 
synchronization that leverages knowledge from Theory of Constraints (TOC), traditional 
MRP & DRP, Six Sigma and Lean with a breakthrough innovation. 
Well-known Methods to find order quantities in MRP 
systems 
The well-known methods to find the order quantities are as following:[5] 
 Dynamic lot-sizing 
 Silver–Meal Heuristic 
 Least-Unit-Cost Heuristic
Bibliography- 
1. http://www.ami.ac.uk/courses/topics/0173_mrp/ 
2. http://en.wikipedia.org/wiki/Material_requirements_planning

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Mrp 1

  • 1. Name: Jai Aivole & Sumit Mehta Roll Number: 812 & 840 Class: T.Y.BMS Division: A Sydenham College of Commerce and Economics 2014 – 15 Subject: Elements of Logistics
  • 2. Material Requirements Planning Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives:  Ensure materials are available for production and products are available for delivery to customers.  Maintain the lowest possible material and product levels in store  Plan manufacturing activities, delivery schedules and purchasing activities.
  • 3. History Prior to MRP, and before computers dominated industry, Reorder point/reorder-quantity (ROP/ROQ) type methods like EOQ (Economic Order Quantity) had been used in manufacturing and inventory management. In 1964, as a response to the TOYOTA Manufacturing Program, Joseph Orlicky developed Material Requirements Planning (MRP). The first company to use MRP was Black & Decker in 1964, with Dick Alban as project leader. In 1983 Oliver Wight developed MRP into manufacturing resource planning (MRP II).[1]Orlicky's book Material Requirements Planning has the subtitle The New Way of Life in Production and Inventory Management (1975). By 1975, MRP was implemented in 700 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning, S&OP in 1983 and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software). Dependent Demand vs. Independent Demand Independent demand is demand originating outside the plant or production system, while dependent demand is demand for components. The bill of materials (BOM) specifies the relationship between the end product (independent demand) and the components (dependent demand). MRP take as input the information contained in the BOM. The scope of MRP in manufacturing The basic functions of an MRP system include: inventory control, bill of material processing, and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. "Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required." Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:  If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.  If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.  Beginning production of an order at the wrong time can cause customer deadlines to be missed.
  • 4. MRP is a tool to deal with these problems. It provides answers for several questions:  What items are required?  How many are required?  When are they required?... MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items. The data that must be considered include:  The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM (Bill of materials).  How much is required at a time.  When the quantities are required to meet demand.  Shelf life of stored materials.  Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers.  Bills of materials. Details of the materials, components and sub-assemblies required to make each product.  Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routing, Labour and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs. Outputs There are two outputs and a variety of messages/reports:  Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS).  Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules. Messages and Reports:  Purchase orders. An order to a supplier to provide materials.  Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing orders. Problems with MRP systems First problem with MRP systems - the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master
  • 5. production schedule, then the output data will also be incorrect ("GIGO": Garbage In, Garbage Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors, production reporting errors, and system issues. Many of these type of errors can be minimized by implementing pull systems and using bar code scanning. Most vendors in this type of system recommend at least 99% data integrity for the system to give useful results. Second problem - systems is the requirement that the user specify how long it will take for a factory to make a product from its component parts (assuming they are all available). Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory. A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have plenty thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory, and inter-communicate the needs in order to enable each factory to redistribute components, so as to serve the overall enterprise. This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example, systems like variety reduction and engineering, which makes sure that product comes out right first time (without defects), must be in place. Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions. Parts must be booked into and out of stores more regularly than the MRP calculations take place. Note, these other systems can well be manual systems, but must interface to the MRP. For example, a 'walk around' stock intake done just prior to the MRP calculations can be a practical solution for a small inventory (especially if it is an "open store"). The other major drawback of MRP is that takes no account of capacity in its calculations. This means it will give results that are impossible to implement due to manpower or machine or supplier capacity constraints. However this is largely dealt with by MRP II. Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials. In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the functions of the company); ERP has been the next step.
  • 6. Solutions to data integrity issues Bill of material - The best practice is to physically verify the bill of material either at the production site or by un-assembling the product. Cycle count - The best practice is to determine why a cycle count that increases or decreases inventory has occurred. Find the root cause and correct the problem from occurring again. Scrap reporting - This can be the most difficult area to maintain with any integrity. Start with isolating the scrap by providing scrap bins at the production site and then record the scrap from the bins on a daily basis. One benefit of reviewing the scrap on site is that preventive action can be taken by the engineering group. Receiving errors - Manual systems of recording what has been received are error prone. The best practice is to implement the system of receiving by ASN from the supplier. The supplier sends an ASN (Advanced Shipping Notification). When the components are received into the facility, the ASN is processed and then company labels are created for each line item. The labels are affixed to each container and then scanned into the MRP system. Extra labels reveal a shortage from the shipment and too few labels reveal an over shipment. Some companies pay for ASN by reducing the time in processing accounts payable. Shipping Errors - The container labels are printed from the shipper. The labels are affixed to the containers in a staging area or when they are loaded on the transport. Production reporting - The best practice is to use bar code scanning to enter production into inventory. A product that is rejected should be moved to an MRB (material review board) location. Containers that require sorting need to be received in reverse. Replenishment - The best replenishment practice is replacement using bar code scanning, or via pull system. Depending upon the complexity of the product, planners can actually order materials using scanning with a min-max system. Next Generation MRP Demand Driven MRP In 2011, the third edition of "Orlicky's Planning" introduced a new type of MRP called "Demand Driven MRP"(DDMRP). The new edition of the book was written, not by Orlicky himself (he died in 1986) but by Carol Ptak and Chad Smith at the invitation of McGraw Hill to update Orlicky's work. Demand Driven MRP is a multi-echelon formal planning and execution technique with five distinct components: 1. Strategic Inventory Positioning - The first question of effective inventory management is not, “how much inventory should we have?” Nor is it, “when should we make or buy something?” The most fundamental question to ask in today’s manufacturing environments is, “given our system and environment, where should we
  • 7. place inventory to have the best protection?” Inventory is like a break wall to protect boats in a marina from the roughness of incoming waves. 2. Buffer Profiles and Level - Once the strategically replenished positions are determined, the actual levels of those buffers have to be initially set. Based on several factors, different materials and parts behave differently (but many also behave nearly the same). Buffer profiles take into account important factors including lead time (relative to the environment), variability (demand or supply), whether the part is made or bought or distributed and whether there are significant order multiples involved. 3. Dynamic Adjustments - Over the course of time, group and individual traits can and will change as new suppliers and materials are used, new markets are opened and/or old markets deteriorate and manufacturing capacities and methods change. Dynamic buffer levels allow the company to adapt buffers to group and individual part trait changes over time through the use of several types of adjustments. 4. Demand Driven Planning - takes advantage of the sheer computational power of today’s hardware and software. It also takes advantage of the new demand driven or pull-based approaches. When these two elements are combined then there is the best of both worlds; relevant approaches and tools for the way the world works today AND a system of routine that promotes better and quicker decisions and actions at the planning and execution level. 5. Highly Visible and Collaborative Execution - Simply launching Purchase Orders (POs), Manufacturing Orders (MOs) and Transfer Orders (TOs) from any planning system does not end the materials and order management challenge. These POs, MOs and TOs have to be effectively managed to synchronize with the changes that often occur within the “execution horizon.” The execution horizon is the time from which a PO, MO or TO is opened until the time it is closed in the system of record. These five components work together to greatly dampen, if not eliminate, the nervousness of traditional MRP systems and the bullwhip effect in complex and challenging environments. In utilizing these approaches, planners will no longer have to try to respond to every single message for every single part that is off by even one day. This approach provides real information about those parts that are truly at risk of negatively impacting the planned availability of inventory. DDMRP has been successfully applied to a variety of environments including CTO (Configure to Order), MTS (Make to Stock), MTO (Make to Order) and ETO (Engineer to Order). The methodology is applied differently in each environments but the five step process remains the same. DDMRP is a significant innovation in material planning and synchronization that leverages knowledge from Theory of Constraints (TOC), traditional MRP & DRP, Six Sigma and Lean with a breakthrough innovation. Well-known Methods to find order quantities in MRP systems The well-known methods to find the order quantities are as following:[5]  Dynamic lot-sizing  Silver–Meal Heuristic  Least-Unit-Cost Heuristic
  • 8. Bibliography- 1. http://www.ami.ac.uk/courses/topics/0173_mrp/ 2. http://en.wikipedia.org/wiki/Material_requirements_planning