2016Material Requirement Planning

JINNAH UNIVERSITY FOR WOMEN

Assignment: Material Requirement Planning.

Subject: Production and Operation Management.

Class: BBA 3 (B)

Submitted to: Miss Uzma Imran

Submission date: 23rd April,2016

GROUP MEMBERS:NAUSHEEN KHAN

RABIYA JAMSHAID

NUZHAT FATIMA

SYEDA UMBER REHAN

ACKNOWLEDGEMENT

We would like to express our gratitude first and foremost to our Lord Almighty Allah for giving us the valor to remain dedicated to make this report.

Writing this report appeared to be great experience to us. It added a lot to our knowledge while we were working on this report. If we say that this report is one of our memorable experiences in student life, then it would not be wrong.

For the successful completion of this report, we would also like to thank our course instructor Miss Uzma Imran. Without her gratitude this report would not be possible.

Finally, we offer our heartiest gratitude to our family members for their selfless blessings.

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TABLE OF CONTENTS

1. Executive Summary -------------------------------------------------------------------------- Pg. 3

2. Introduction ----------------------------------------------------------------------------------- Pg. 4

2.1. What is MRP? --------------------------------------------------------------------------- Pg. 4

2.2. Dependent and Independent Demand ------------------------------------------------ Pg. 4

3. Function of MRP ----------------------------------------------------------------------------- Pg. 5

4. How MRP Work? ---------------------------------------------------------------------------- Pg. 6

4.1. Input -------------------------------------------------------------------------------------- Pg. 7

4.2. MRP Process ---------------------------------------------------------------------------- Pg. 7-8

4.3. Output ------------------------------------------------------------------------------------ Pg. 8

4.4. An Example to Understand MRP ----------------------------------------------------- Pg. 9

5. Importance of MRP ------------------------------------------------------------------------- Pg. 10

5.1. Example --------------------------------------------------------------------------------- Pg. 10

6. Advantages and Disadvantages ------------------------------------------------------------ Pg. 11

7. Will MRP work for you? -------------------------------------------------------------------- Pg. 12

7.1. Link between Manufacturing and Distribution ------------------------------------ Pg. 12-13

7.2. Shop Floor Control --------------------------------------------------------------------- Pg. 13

7.3. Buffer Stocks and Work Center Priorities ------------------------------------------- Pg. 14

8. Conclusion ------------------------------------------------------------------------------------ Pg. 15

9. Reference ------------------------------------------------------------------------------------- Pg. 16

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1. EXECUTIVE SUMMARY

MRP is based on the fact that the demand for materials, parts, and components depends on the demand for an end product. With the advent of such systems, production efficiency could be greatly improved. MRP is the part of ERP that deals specifically with the control and management of manufacturing inventories and the products produced by those inventories. MRP excels in forecasting, reducing weight, floor controlling and scheduling. It helps to reduce per unit cost of production thus enabling an organization to price its products competitively. It keeps inventory levels low, especially for in-process materials. It gives comprehensive material tracking and optimized production scheduling. It improves capacity allocation and planning. MRP works by taking inputs, process them and then provide output.

In fabrication assembly operations, MRP and associated systems allow a company to maintain the separation between two different types of processes, but they also allow such a company to substitute current and timely information from a centralized source for large intra-organizational inventories. While MRP has universally applicable elements, its ultimate success is intimately related to some important aspects of your overall manufacturing operations, which must be carefully analyzed. Overall, MRP was the earliest of the integrated information systems dealing with improvements in productivity for businesses with the use of computers and software technology to provide meaningful data to managers. Manufacturing organizations, whatever their products are, 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. Material requirement planning is useful in these types of issues.

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2. INTRODUCTION

2.1. What is MRP?

Material Requirements Planning (MRP) is a computer-based production planning and inventory control system. MRP is concerned with both production scheduling and inventory control. It is a material control system that attempts to keep adequate inventory levels to assure that required materials are available when needed.

MRP is a new name applied to an old concept, but it is a concept that has come of age with currently available data processing capabilities. This synthesis of modern computers and some old (and some new) concepts has resulted in a system that can be used effectively to both plan and control production and materials flows. The logic of MRP is based on the fact that the demand for materials, parts, and components depends on the demand for an end product. This distinction is vital since it explains both the behavior of parts orders and, ultimately, inventories.

2.2. Dependent vs. independent demand:

In manufacturing it is reasonable (in fact, perhaps desirable) to want absolutely no inventory of a part for, say, ten months and exactly 200 each day for the next two months. Why? Because that exactly corresponds to the demand for the part—the part goes into a finished product that is batch assembled. This “lumpy” demand (zero for several weeks, then 1,000 needed this morning) is a common fact of manufacturing life, even when lot size economies and allowances for scrap are taken into account. It occurs because the demand for parts and components is directly dependent on the demand for some higher-order assembly or manufacturing step that is carried out in batches. For example, the demand for steering columns on automobiles is directly dependent on demand for the end products—the cars themselves.

Distribution inventories, on the other hand, often do not experience the “lumpiness” caused by higher-order batching. This is because the demand for finished goods and spare parts is independent of the demand for other items produced in manufacturing.

So for manufacturing, where “we want what we want when we want it,” keeping “average” numbers of parts on hand, as we might be able to in distribution, will lead to either excess inventories or the inability to produce on time. Manufacturing inventory control systems must incorporate the dependent demand concept to work effectively.

MRP was the earliest of the integrated information systems dealing with improvements in productivity for businesses with the use of computers and software technology to provide meaningful data to managers. With the advent of such systems, production efficiency could be greatly improved. As the analysis of data and the technology to capture it became more sophisticated, more comprehensive systems were developed to integrate MRP with other aspects of the manufacturing process.

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3. FUNCTION OF MATERIAL REQUIREMENTS PLANNING

Enterprise resource planning (ERP) has many facets, including those that deal with manufacturing. One facet of ERP that has the potential to create great efficiencies for a company is material requirements planning (MRP). MRP is the part of ERP that deals specifically with the control and management of manufacturing inventories and the products produced by those inventories. Most organizations use MRP as a strategy in lean manufacturing, where only the necessary level of inventory is maintained for just-in-time manufacturing. To be successful, lean manufacturing requires constant attention to detail and automation at the right points in the supply chain to ensure high levels of efficiency. These capabilities are where MRP excels.

Forecasting:

One of the primary functions of MRP software is to assist in accurate material forecasting. This requires integration with manufacturing activities, such as inventory levels, production schedules, and customer demand. The software takes all these aspects of manufacturing, combined with a few others such as inventory lead times, and then forecasts the level at which inventory should be purchased and manufactured. This helps ensure that customer demand is realized and that out-of-stock situations are reduced.

Reducing Waste:

Reducing the amount of unused materials or products is another primary function of MRP software. The system combines data from current production levels and customer demand to determine the optimum level of materials and finished products. Changes in production can trigger automatic responses in bill of materials handling, stock levels, and manufacturing activities. For example, if production is behind, the MRP software may temporarily reduce the level at which inventory is received to prevent a backup of inventory that could potentially become waste if production is halted or changed.

Floor Control and Scheduling:

The same data used by MRP to forecast materials and reduce waste can also be used to manage and maintain shop floor control and manufacturing scheduling. Data integration is key here. The data from shipping and purchasing schedules as well as from materials receipts is compared to data from customer demand, which results in better manufacturing schedules to ensure that customer demand is met without shortages or materials waste. If adjustments need to be made to any aspect of the process, the MRP system can automatically make those changes or create flags and warnings to notify management that correction is necessary.

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4. HOW MRP WORKS

MRP INPUT PROCESS OUTPUT:

4.1. INPUTS: 6 | P a g e

Master Production Schedule (MPS) :

Master Production Schedule (MPS) States which end items are to be produced, when they are needed, and in what quantities. The Master Production Schedule (MPS) is a schedule of how much & when to produce independent (customer end product) demand. It shows when the end product is needed but does not show when raw materials, components, subassemblies or parts are needed.

Bill of Materials (BOM) : A listing of all of the raw materials, parts, and sub-assemblies needed to produce one unit of a product. The MRP computer system accesses the BOM file to determine exactly what items, and in what quantities, are required to complete an order for a given item.

Inventory Records:The Inventory Master (IM) File: the IM file contains detailed information regarding the number of quantity of each item on hand, on order, and committed to use in various time periods. The MRP computer system accesses the IM computer file to determine the quantity available for use in a given time period and, if enough are available to meet the order needs, commits these for use during the time period by updating the inventory record.

4.2. MRP Processing:

Processes the following for each time period:

Gross Requirements: For the final product, this value is taken from the results of disaggregation, while at the level of item lower, Gross Requirement for each period equal to the item's (parent's) Planned Order Release level that is above multiplied by the number / quantity for each parent (usage).

Schedule receipts: Receipt schedule is the number of items that have been purchased, but not fully accepted by the buyer (Purchaser). o The item is still being processed by the supplier, o The item are being delivered to the Purchaser o The item being examined by the admissions department Purchaser

Projected on hand: Inventory on hand is the number of items into inventory at the beginning of the period and the expected quantity of inventory at the end of the time period is 0.

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Net Requirements: Net requirement is that the actual quantity needed to be accepted or produced in a particular period. NR negative value indicates that no production is required in a period.

Planned-order Receipts: Planned order receipt is the number of items to be received or produced at the end of the particular period.

Planned-order Releases: Is the number of items to be received or produced at the end of a particular period of time taking into account the lead time for each component.

4.3. MRP Outputs:

Primary Reports

Planned Orders: Schedule indicating the amount and timing of future orders. Order Releases: Authorization for the execution of planned orders. Changes: Revisions of due dates or order quantities, or cancellation of orders.

Secondary Reports Performance-control reports: Evaluation of system operation, including deviations

from plans and cost information. Planning reports: Data useful for assessing future material requirements. Exception Reports: Data on major discrepancies encountered.

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4.4. An Example to Understand MRP

In order to understand how the logic of an MRP system works, suppose that, in accordance with a master schedule made out for the next year, we find that we want to deliver a yo-yo in seven weeks to a customer.

We know from the bill of materials that we will require these parts: two wooden sides, one wooden peg, a piece of string, and a cardboard box with printed instructions. A check of the inventory status file shows that we have neither inventories nor open orders for these parts, except that we have one wooden side on hand. We know that the procurement lead times are: sides, five weeks; pegs, one week; string, one week; boxes, four weeks. And we know that it will take one week to actually assemble the toy. To ship during the seventh week then, we will need everything in time for assembly during the sixth.

We could easily place the orders for all these parts right now, but what would happen if we did? We would have string and a peg next week that would sit in inventory for five weeks. Not very important with one toy, but what if this was an order for 50,000?

So instead of ordering everything now, let’s work back from the hypothetical delivery date. We will need all of the components in the sixth week, so we can simply calculate when to place our orders by subtracting lead times. This lead-time offsetting, while netting out current inventory balances, will result in planned orders for one wooden side next week, a box the following week, and the peg and string three weeks after that. If, in turn, the sides require red paint that has a three-week lead time, and no paint is on hand, we can see that our delivery would be two weeks late. If this were the case, we could either expedite the paint and side or negotiate for later delivery of the yo-yos. In either event, we would not expedite any of the other components.

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5. IMPORTANCE OF MATERIAL REQUIREMENTS PLANNING

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:5.1. EXAMPLE

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.

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6. ADVANTAGES AND DISADVANTAGES OF AN MRP SYSTEM

MRP is a comprehensive system used for planning and scheduling materials requirement. It assists in improving the materials handling capability of an organization. But it has certain disadvantages. Some of the advantages and disadvantages of MRP have been discussed below

ADVANTAGES:

Some of the key benefits that can be derived from using an MRP system are:

Reduced per unit cost of production thus enabling an organization to price its products competitively

Low inventory levels, especially for in-process materials

Better response to market demand Better customer service Reduced set-up and tear-down costs Comprehensive material tracking and optimized

production scheduling Improvement in capacity allocation and planning.

DISADVANTAGES:

Following are the disadvantages of an MRP system:

High costs and technical complexities in implementation. In addition, organizations, which use an MRP system need to spend considerable effort on installing necessary equipment (computers), training personnel, modifying the software to serve their specific needs, validating, testing, and eliminating possible errors, and maintaining the software.

The time required for planning and implementing an MRP system is generally very long.

Data entry and file maintenance requires considerable inputs in the form of training and education of the personnel.

Dependence on forecast values and estimated lead-time can sometimes be misleading.

The implementation of an MRP system can be effective only when there is a high degree of accuracy in the organization's operations. It requires high commitment from the top management of an organization. The management should educate its executives on the importance of MRP as a strategic planning tool. The success of an MRP system, like that of any other system depends

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on proper implementation and right application. Managers can derive more benefits if they use the MRP system as a management-planning tool.           

7. WILL MRP WORK FOR YOU?

Our experience shows that, while MRP has universally applicable elements, its ultimate success is intimately related to some important aspects of your overall manufacturing operations, which must be carefully analyzed. It is not a question of whether its basic logic applies—in most cases, it does. The question is how you can best incorporate this logic into your own manufacturing system, given

(1) Its key control variables, and

(2) Its key production/inventory tasks.

Others have detailed the importance of developing a well-thought-out manufacturing policy, and this question refers to just that. The answer provides the background for an analysis of what MRP can and cannot do for you.

Let us use three general examples to illustrate such an analysis:

1. Company A is a basic assembly operation. Almost all parts and subassemblies are purchased externally; there are long production runs of a few models; the finished goods inventory is kept in an extensive distribution system.

2. Company B is a general machine shop. Products are made to order and customer specification; there are complex flows in manufacturing; and there are large in-process inventories.

3. Company C is a fabrication/assembly operation. Most parts are manufactured in a general machine shop and assembled in small quantities to customer order and specification.

7.1. Link between Manufacturing and Distribution

For Company A, where a few products are assembled to stock in long production runs, MRP seems a natural. The assembly or master schedule can be used with a bill of materials and inventory file to explode requirements and offset lead times for purchased parts and subassemblies.

But consider the key production/inventory control tasks for this organization. Factory cycle times and in-process inventories are likely to be almost nonexistent. In-process inventory control, though important, is not the key task in this case. Inventories are more likely to be concentrated in the distribution system. Hence, Company A’s key production/inventory tasks focus on planning intermediate-term (three to twelve months) production while controlling distribution

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system inventories and purchase orders. Its key control variables are the avoidance of stock outs at distribution centers, the smoothness of production rates, and the maintenance of a supply of purchased components for the assembly lines to avoid shutdowns.

If MRP is to be used effectively in this kind of manufacturing environment, it must interface well with distribution. The master schedule is important since it links the current stock position at distribution centers with the assembly schedules. Moreover, the master schedule in this case incorporates the intermediate-term production plan by which the manager can smooth peaks and valleys in production levels.

By exploding as well as time-phasing components requirements from this master schedule, an MRP system can give purchasing the information it needs to control its acquisitions. MRP can then maintain priorities as schedules change, stock-outs threaten, and deliveries slip. But here its focus is on distribution, production smoothing, and purchasing as the key tasks and control variables of the system. This focus in turn requires, of course, that the organization have a well-developed and rapid distribution and purchasing communications system.

7.2. Shop Floor Control

Company B provides a substantially different view of MRP’s usefulness. Given the general machine shop’s piece-part, make-to-order environment, management must be able to promise realistic due dates to customers, coordinate the design, manufacturing, and engineering functions with production, and schedule the flow of material and work from one machine center to another. Its important control variables are likely to be the percentage of deliveries made on time, the level of in-process inventories, the length of time between customer orders and delivery time, and the utilization of machines and manpower.

But, in contrast to Company A, Company B’s manufacturing (in-process) inventory and scheduling control is a critical activity. In fact, most of Company B’s inventories are likely to be in-process inventories. Consequently, a reporting and scheduling system must be available in the shop so that production can proceed in accordance with the priorities obtained from the MRP system. Keeping priorities straight here means making maximum use of available capacity. The MRP and shop floor control systems must be carefully coordinated and integrated to be useful.

In this kind of environment an MRP system can also perform two other important functions. First, by offsetting lead times for material requirements, it can help determine realistic due dates for customers. There is little payoff in promising the delivery of a part in 10 weeks if it takes 15 weeks to acquire the necessary materials. Second, it can help control the acquisition of this material. By updating the receipts of materials and other new information, purchasing personnel can quickly focus on the priorities of these items and expedite and de-expedite materials accordingly. Moreover, with such a system it becomes immediately apparent when materials will arrive too late to meet a due date, and management can notify customers early or make other arrangements.

7.3. Buffer Stocks and Work Center Priorities

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The previous examples illustrate the important role the MRP concept can play in many types of companies. However, there are few in which it has made as great an impact as in the ubiquitous fabrication/assembly type of operation typified by Company C. From a historical perspective, this is easy to understand.

Fabrication/assembly companies, characterized by a general machine shop for fabricating parts and components that are used in downstream assembly operations, have frequently separated these two widely divergent kinds of processes with large buffer inventories. These inventories have served two purposes: to segregate the management of the two kinds of manufacturing for organizational and technical reasons, and to ensure enough of the many parts required to keep assembly operations supplied and to process orders in time.

But these buffer inventories were usually controlled by classical reorder point methods that assumed that the demands for individual components were independent of one another and of the demand for assembled items; and they never have been. The result has been large inventories and a great deal of intra-organizational struggle anyway, because the assembly department has constantly interfered with fabrication activities to get all the parts it needed to complete an assembly. For many such companies, a computer-based MRP system has become the answer. But, as before, the special requirements of fabrication/assembly operations mean that the way it has become the answer for them differs from that found to be suitable for others.

Company C’s fabrication/assembly operation must simultaneously complete the key tasks of both the assembly operation (like Company A’s) and the general machine shop operation (like Company B’s). In other words, it must simultaneously be responsive to stock outs and customer due dates, keep assembly operations supplied, and maintain priorities and schedule equipment in the fabrication area. To accomplish this, MRP must serve as the link between fabrication and assembly, as well as between assembly and distribution.

The master schedule serves, as before, to link assembly and distribution, but a fabrication shop floor control system is the link between fabrication and assembly. The shop floor control system accomplishes this by translating the master schedule, via MRP, into priorities that can be used to determine which parts will be worked on at a particular work center. In some companies, “capacity requirements planning” is a second link between fabrication and assembly. This is a technique that can project fabrication shop loads from the master schedule and can also help determine labor requirements, subcontracting needs, or equipment needs.

In fabrication assembly operations, MRP and associated systems allow a company to maintain the separation between two different types of processes, but they also allow such a company to substitute current and timely information from a centralized source for large intra-organizational inventories.

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8. CONCLUSION

MRP is the part of ERP that deals specifically with the control and management of manufacturing inventories and the products produced by those inventories. While MRP has universally applicable elements, its ultimate success is intimately related to some important aspects of your overall manufacturing operations, which must be carefully analyzed.. But it causes high costs and technical complexities in implementation. In addition, organizations, which use an MRP system need to spend considerable effort on installing necessary equipment (computers), training personnel, modifying the software to serve their specific needs, validating, testing, and eliminating possible errors, and maintaining the software. The time required for planning and implementing an MRP system is generally very long. Data entry and file maintenance requires considerable inputs in the form of training and education of the personnel. Dependence on forecast values and estimated lead-time can sometimes be misleading. Despite all these facts, MRP is based on the fact that the demand for materials, parts, and components depends on the demand for an end product. With the advent of such systems, production efficiency could be greatly improved.

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9. REFERENCES

http://www.investopedia.com/terms/m/mrp.asp#ixzz41OB5v99A http://www.inc.com/encyclopedia/material-requirements-planning-mrp.html http://www.slideshare.net/AmaliaSyafitri1/modul-6-material-requirements-planning?

related=1

http://www.authorstream.com/Presentation/ibmepune-308417-input- output-mrp-system-entertainment-ppt-powerpoint/

http://www.slideshare.net/salehasgari1/material-requirement-planning- mrp1-56361861?qid=3f7fdf2c-e612-460b-abdc-0116a4eb1add&v=&b=&from_search=7

http://www.slideshare.net/AmaliaSyafitri1/modul-6-material- requirements-planning?qid=3f7fdf2c-e612-460b-abdc-0116a4eb1add&v=&b=&from_search=40

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