MATERIAL REQUIREMENT

PLANNING (MRP)

INTRODUCTION TO MATERIAL REQUIREMENT PLANNING (MRP)

1. The variety of products to be manufactured

and the nature of process demand good
planning to meet the requirement of
materials (MRP) during manufacture of
products to meet the production schedule
as per production plan.
2. The effective use of MRP system requires
accurate bills of materials and inventory
records.

KEY TASKS OF MATERIAL REQUIREMENT PLANNING (MRP)

For MRP to be effective, four key tasks must be performed

properly:
1. The material plan must meet both the requirements of the
master schedule and the capabilities of the production
facility
2. The plan must be executed as designed
3. Inventory investment must be minimized through effective
time-phased material deliveries, consignment inventories
4. Excellent record integrity must be maintained, which is
considered an essential ingredient of a successful MRP
programme

BENEFITS OF MRP
Important benefits of MRP are:
1. Better response to customer orders as the
result of improved adherence to schedules
2. Faster response to market changes
3. Improved utilization of facilities and labor
4. Reduced inventory levels
The above benefits are the result of use of a
DEPENDENT INVENTORY SCHEDULING SUSTEM

DEPENDENT DEMAND
1. Demand for an item is dependent when
relationship between the items can be
determined
2. Therefore, once management receives an order
for the final product, quantities for all
components can be computed
3. For any product, all components of the product
are dependent items, i.e., The Boeing aircraft
operations manager who schedules production
of one aircraft per week, would know the
requirement down to the last rivet
4. For materials planning, dependent models are
preferred to EOQ models

DEPENDENT INVENTORY MODELS:

Effective use of dependent inventory models require that
the operations manager know the following:
1. Master production schedule (what is to be made and
when)
2. Specifications or bill of material (materials and parts
required
to make the product)
3. Inventory availability (what is in stock)
4. Purchase orders outstanding (what is on order, i.e.
expected receipts)
5. Lead times (how long it takes to get various components)

MRP STRUCTURE
1. Most MRP systems are computerized (manually is also
possible)
2. Ingredients of a Material Requirement Planning system:
a) Master Production Schedule
b) Bill of Materials
c) Inventory and purchase records
d) Lead times for each item
3. Once these informations are available and accurate, the next
step is to construct a GROSS MATERIAL REQUIREMENT PLAN.
4. The GROSS MRP is a schedule, which shows when an item
must be ordered from the suppliers if there is no inventory on
hand or when the production of an item must be started to
satisfy demand for the finished product by a particular date.
5. Gross MRP is prepared when there is no inventory on hand
6. When there is inventory on hand, we prepare a NET
REQUIREMENT PLAN:

MRP DYNAMICS:
1. Bill of material and material requirements
plans are altered as changes in design,
schedules and production process occurs
2. Changes in MR can occur whenever master
production schedule is modified
3. Regardless of the cause of any changes, the
MRP model should be changed to have an
update requirement schedule.

LOT SIZE DECISIONS

1. When ever we have a net requirement,
decision must be made about how much to
order.
2. This is called a LOT-SIZING decision
3. There are a variety of ways to determine a
lot size in an MRP
4. Few of them are:
a) Lot-for-Lot
b) EOQ
c) Partial Period Balancing (PPB)

LOT SIZE DECISIONS

1. Lot-for-Lot:
a) We produce exactly what is required
b) MRP system should produce units only as needed with no
safety stock and no anticipation of further orders, since
MRP caters for dependent demand
c) When frequent orders are economical, lot-for-lot can be
efficient
d) When set-up costs are significant, lot-for-lot can be
expensive
2. Economic Order Quantity:
a) EOQ is preferred when relatively constant independent
demand exists, not when we know the demand
b) EOQ is a statistical technique using averages (i.e. average
demand for a year)
c) MRP procedure assumes known (dependent) demand
reflected in a master schedule

LOT SIZE DECISIONS

3. Part Period Balancing (PPB):
a) It is a more dynamic approach to balance set-up and
holding cost
b) It changes the lot size to reflect requirements of the next
lot size in the future
c) PPB attempts to balance set-up and holding cost for
known demands
d) It develops an economic part period (EPP), which is the
ratio of set-p cost to the holding cost.
e.g.: For set-up cost of $100 and holding cost of $1/unit item,
EPP = 100/1 = 100 units, i.e., holding 100 units for one
period would cost $100 (equal to the set-up cost).
Holding 50 units for 2 periods would cost $100 (2x1x50)
PPB adds requirement until the number of part periods
approximate PPB.

End of this Lecture