Materials Requirement Planning

Materials Requirement Planning

It is the logic 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.


MRP is a software system/ computer program which
generate outputs to control the material and other
resources quickly and accurately.


Objectives of MRP
MRP is adopted to achieve

1. Timely availability of material and components.
2. Maintain level of inventory as low as possible.
3. Planning of manufacturing activities.
4. Improve operational efficiency of the plant.
5. Reduces wastage and scrap.
6. Reduce ideal time and increase efficiency and use
of the resources.
7. Avoid confusion and hold ups in production.
Elements of MRP

1. Master production Schedule (MPS) It is a list of
items to be produced to replenish the inventory of
finished goods or to meet special orders. MPS is tested
by material requirement plant and capacity requirement
plant.

2. Bill of Material (BOM) it is a file listing of
materials and their quantities that are required to
produce one unit of product. it helps in breaking down
MPS into assemblies, subassemblies, parts and raw
material requirement.
3. Inventory status file It gives details of
Material code
Unit of measure
Maximum level
Minimum level
Reorder level
Unit price
Stock on hand on a particular date of run
Order status of the items
Reservation status of the item if any
Material in transit or in inspection
MRP
System
Input
Inventor
y Status
file
Order or
Forecas
t file
Master
Production
schedule
Bill of
Materials
Output
Inventor
y
transacti
on data
Secondary output
Planning
report
Perfor
mance
Report
Exceptio
n Report
Primary
Outputs
Chang
es to
planne
d
order
Plann
ed
order
sched
ule


Factors affecting MRP Implementation


Acceptability of Management
Participation of MRP using Personnel
Training of involved Personnel
Decision about selection of MRP system
Accuracy of Data
Practical Orientation of MPS
Problems faced during Designing,
Managing and Using the MRP Systems

1. Integrity and accuracy of the data
2. Specification of the time duration
3. Need of individual factory
4. Functioning of other systems
5. Incompetent and inadequate software
6. Incompetent manpower to handle MRP
7. Timing of information generation
8. Market uncertainities


Primary MRP Reports
Planned orders to be released at a future time.

Order release notices to execute the planned orders.

Changes in due dates of open orders due to
rescheduling.

Cancellations or suspensions of open orders due to
cancellation or suspension of orders on the master
production schedule.

Inventory status data

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.
Lot sizing techniques used in MRP
systems

1. Lot-for-lot (L4L) most used
2. Economic order quantity (EOQ)
3. Periodic order quantity (POQ)
4. Least unit cost (LUC)
5. Least total cost ( LTC)

Lot-for-lot (L4L) - It consists of

Plan order exactly to meet the net requirement.
Produce exactly what is needed in each week
with no carry over to future.
Minimize carrying cost
It do not consider the set up cost or the capacity
limitations.

Economic Order Quantity EOQ
It uses the estimate of annual demad
It consists of two cost
Setup cost / Ordering cost
Carrying cost / holding cost


It is calculated using formula

EOQ = 2 DS/ H
Where D = Annual Demand
S = Setup or ordering cost
H = Annual holding cost

Periodic Order Quantity
Here an order is placed so that it covers the requirement of
period P


If an order is placed it should cover the order of P successive
period.


Number of Periods = EOQ
Average demand during planning Phase

= EOQ / Demand /N
Lest Unit Cost (LUC)



It is a dynamic lot sizing technique

Calculate Ordering cost and Carrying Cost for different
lot size.

Select a lot size for which

Ordering cost Carrying Cost



Lest Total Cost (LTC)



It is also a dynamic lot sizing technique

LTC = Ordering cost + Carrying Cost
Number of units


Question
Consider an item that has projected demand as shown in the
table below and a beginning inventory of 30 units. The carrying
cost per unit per week is Rs 2.50. the cost per setup is Rs 250. the
least time to assemble the item is one week.






a. Develop an EOQ solution and calculate total relevant cost
b. Develop a POQ solution and calculate total relevant cost
c. Develop a LUC solution and calculate total relevant cost
d. Develop a LTC solution and calculate total relevant cost
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
Projected
requirement
- 30 50 40 - 15 20 20 - 10 - 15 50