MATERIALS REQUIREMENT PLANNING (MRP)

LEARNING OBJECTIVES

On successful completion of this lesson, you will be able to understand:

The concept of Demand dependency and Materials Requirement Planning

Genesis of MRP
Importance of MRP across the disciplines
The components of MRP
Terminology of MRP component records
Concept of Capacity Requirement Planning
Benefits and limitations of MRP
Manufacturing Resources Planning
Difference between MRP and JIT

INTRODUCTION

Initially, manufacturers viewed MRP as a better method for ordering components than the
independent demand inventory models they had been using during the 1950s and 1960s.
However, it has evolved into a comprehensive priority planning system. MRP provides a
method that helps keep order due dates valid, even after the orders have been released to the
shop floor or outside vendor. MRP systems can detect when the due date of an orderthe
date the order is scheduled to arriveis out of alignment with its need date the date the
order is actually required.

During the 1970s and 1980s, techniques for helping to plan capacity requirements were tied
up with MRP. Tools were developed to support the planning of aggregate production levels
and the development of anticipated production schedules. Systems to aid in executing the
plans were incorporated at shop floor control for the 'in-house factory' and vendor scheduling
for the 'outside factories'. The expanded MRP system became known as closed loop MRP,
because it provided feedback from the execution function to the planning functions, so
manufacturers could change plans when necessary. Eventually, practitioners expanded closed
loop MRP to provide the ability to translate the operating plan expressed in manufacturing
terms such as units and kilogramsinto financial termsrupeesand have the capability to
simulate the effects of various plans in terms of both units and rupees. The new system, which
was called Manufacturing Resource Planning (MRP-II), was a comprehensive approach for the
effective planning of all the resources of a manufacturing organization.

Production and materials planning is critical to the success of a manufacturing company. A

company can have the best product design, the newest manufacturing facilities, the latest
equipment and all the latest production technologies like CAD/CAM, robotics, Automated
Guided Vehicles (AGVs), etc. but not the ability to compete. MRP has proved to be an
effective production and inventory planning system in a wide variety of environments.

An MRP system requires three types of information:

Master Production Schedule (MPS)
Bill of Material (BOM)
Inventory Records (IR)

MPS is a detailed production schedule for finished goods or end items that provides the
major input to the materials requirement planning process. Associated with each finished
product is a BOM, which describes the dependent demand relationships that exist among
the various componentsraw materials, parts, subassemblies, etc.comprising the
finished product. The entire set of BOMs for the company's finished products is called the
BOM file. Inventory status data for each product or component such as stock-on-hand,
stock-on-order, etc. are provided by the inventory records-IRs, which also contain planning
factors like lead-time, safety stock, re-order level, and so on.

MRP logic uses the MPS, the BOM file and the inventory records to determine the
following for all components:

Planned order quantities

Planned order release dates (to shop floor/suppliers)

 Planned order due dates

The MRP system calculates the release dates and the due dates taking into consideration
the lead-times required to produce or procure the components and by recognizing the
order in which they are assembled into the finished product. If the MRP process is carried
out in conjunction with capacity planning, the production facility should have the
capacity to complete the orders on time.

DEMAND DEPENDENCY

It is the degree to which the demand for some item is associated with the demand for another item.
In the dependent demand situation, if the demand for one item is known, the demand for one or more
related items can be deduced.

For Example: If the demand for the end product is known, we can calculate how many sub-components
are needed, because their demand is directly dependent on the end-item demand.

MATERIALS REQUIREMENT PLANNING

Material Requirement Planning (MRP) is a system of planning and scheduling the time-phased materials
requirement for production operations. If the delivery schedule for the end products is known, then the
size and timing of the requirements of the various lower-level work-in-process items and raw-materials
can be planned exactly by simple arithmetical calculation. Such planning is known as Material
Requirement Planning (MRP).

Although MRP is easy to understand, it can be used in two different ways: MRP-I and MRP-II.

MRP-I: It is an inventory control system, which releases manufacturing and purchase orders at the right
time to support the master schedule. This system launches orders to control work-in-process and raw
materials inventories through proper timing of order placement. MRP-I doesn't include capacity planning.
Henceforth the terminology MRP-I and MRP will be used interchangeably.

MRP-II: It is an information system used to plan and control inventories and capacities in manufacturing
companies. The MRP-II system coordinates sales, purchasing, manufacturing, finance, and engineering
by adopting a focal production plan and by using one unified database to plan and update the activities in
all the systems. The subsequent sections shall cover MRP followed by MRP-II.

Materials Requirement Planning (MRP) is a scheduling procedure for production processes that have
several levels of production. Given information describing the production requirements of the several
finished goods of the system, the structure of the production system, the current inventories for each
operation and the lot sizing procedure for each operation, MRP determines a schedule for the operations
and raw material purchases. It is a simple system of calculating arithmetically the requirement of the input
materials at different points of time, based on the plan or schedule of production of the finished good.

MRP is a computer-based information system for scheduling production and purchases of dependent
demand items. It uses information about end product demands, product structure and component
requirements, production and purchase lead times and current inventory levels to develop cost-effective
production and purchasing schedules.

MRP is a system of planning and scheduling the item Phased materials requirement for production
operations.

GENESIS

People have been calculating the requirement of materials prior to the advent of statistics. As industry
became more complex, models such as EOQ and the science of statistics became available and offered
relief from cumbersome and detailed calculation for planning. The trouble was that even in those
situations where arithmetic computations would have done a better job, people used statistical and
averaging methods. But, with the advent and proliferation of computers things changed. The cumbersome
arithmetic computations could be done in no time. So since the last decade, the MRP system is being
considered.
MATERIAL REQUIREMENT PLANNING PROCESS

The process of Material Requirement Planning is explained in the following figure.4.1

Customer orders Forecasts for the

for finished finished
product products
Master Production
Schedule
Revised MPS
Inventory
on Hand Product design
and structure

Manufacturing and
Procurement lead Material Requirement
times Planning

No
Is the capacity
adequate?
Yes

Final Master Production Schedule and

Material Requirement Plan

MRP ACROSS THE DISCIPLINES

Accounting: which co-ordinates the payments to suppliers and billings to customers with the material
requirement plan.

Finance: which plans for adequate working capital to support the schedules generated in the material
requirement plan.

Human Resources: which determines the implications of the materials plan on personnel requirements.

Marketing: which makes reliable delivery commitments to the customers.

Management Information Systems: which must identify the information requirements of the managers
and the information can be generated from the material requirement plan.

MRP OBJECTIVES

MRP determines how many units of a component are needed and when they are needed to meet the
master schedule. Therefore it enables the manager to procure that component as it is needed, thereby
reducing the costs of excessive inventory.

Reduction in Production and Delivery Lead Times

MRP identifies materials and components quantities, timings, availabilities, production & procurement
actions required to meet delivery dead-lines. By coordinating inventories, procurement and production
decisions, MRP helps in avoiding delays in production. It prioritizes production activities by putting due
dates on customer job orders.

Realistic Commitments

By using MRP, production can give marketing timely information about likely delivery times to
prospective customers.
MRP SYSTEM COMPONENTS :( MRP INPUTS)

Three major sources of information are mandatory in the MRP system

A Master Production Schedule

An Inventory Status File
A Bill Of Materials File

Using these three information sources, the MRP processing logic (computer program) provides three
kinds of information output for each product component

Order Release Requirement

Order Rescheduling
Planned Orders

MASTER PRODUCTION SCHEDULE (MPS)

The MPS is developed from firms customer orders or from forecasts of demand before the MRP
system begins to operate.
The MPS is designed to meet market demand. So, it identifies the quantity of each end product
and when it is to be produced during each future period in the production planning horizon.
Service components for customers are also entered as end items in the MPS.
The MPS provides the focal information for the MRP system.
The MPS governs the MRP systems recommended actions on the timing of procuring materials
and producing sub-components.
By controlling the master schedule, top management can control customer service, inventory levels, and
manufacturing costs. The purpose is to specify the output of the operations function. Top managers cannot
perform the master scheduling task by themselves, because there are too many details. They can set master-
scheduling policy, thereby controlling the materials planning function. Top management should also interface
with manufacturing through the aggregate production Plan. The aggregate production plan deals with families
of products or product lines, not the specific products, models. For example in car manufacturing the aggregate
production plan might contain various types of cars, but not the particular type of engine, hydraulic options,
other features which can be selected by the customer. It seeks to make die resources, equipment, people, and
other facilities available for the future. As a result of an inflated master scheduling, the order priorities are no
longer valid. The formal MRP system then quickly brakes down and the informal planning and control system
dominates. No tiling is more insidious than an inflated master schedule which leads to invalid order due sales.
Rarely is the master schedule a reflection of future demand forecasts. Rather the master schedule is a forecast of
what will be produced. Finished-goods inventory is a buffer between the master schedule and final customer
demand, smoothing out loads and providing fast customer service.

BILL OF MATERIALS (BOM)

BOM is a structure list of all the materials or parts needed to produce a particular finished product,
assembly, and subassembly, manufactured parts, or purchased parts. It is as good as a recipe used for
cooking. Some companies have several BOMs for same product. Engineering has one BOM,
manufacturing has a different version and cost accounting has still different. An MRP system requires a
single BOM for the entire company. BOMs arc constantly undergoing change as products are redesigned.
If there are errors in BOM, the proper materials will not be ordered and the product cannot be assembled
and shipped. As a result, the ordered parts which are available will wait in inventory while the missing
parts are expedited. Management must insist that all ROMs are accurate 100 percent. It is not too costly to
have 100 per cent accuracy. Rather it is too costly to tolerate imperfect BOMs.

This is a document describing the details of an items product build up, including all component items,
their build up sequence, the quantity needed for each and the work centers that perform the build up
sequence. The BOM identifies how each end product is manufactured, specifying all sub-component
items, their sequence, and their quantity in each finished unit. This information is obtained from product
design documents, work-flow analysis and other standard manufacturing and industrial engineering
documentation.

The primary information to the MRP from the BOM is the product structure.

Product Structure
The levels of components to produce an end product is called product structure. The product structure
shows a products build-up. It shows diagrammatically the components required to assemble it, their
numbers, and sequence of assembly.

Let us take up an example. A sub-assembly A is made by joining one unit of component B and two units
of component C (as shown in figure 4.2 ). Therefore, if 100 units of subassembly A are to be
manufactured, 100 units of component B and 200 units of component C are required.

A
Sub-assembly

Components B (1) C (2)

Hence, the requirement of components B and C depend on the requirement of sub-assembly A. The
requirement of sub-assembly A, in turn, may depend on the requirement of the finished product X (as
shown in the figure 4.3).
 Level 0
Finished Product
X

Sub-assembly
A (2) Level 1
Y (1)

Level 2
Components B (1) C (2)

Now if 100 units of product X are to be manufactured, the following would be required.
Sub-assemblies/ Number of units
Components
Y 1 x No.of units of X = 1x 100 = 100
A 2 x No.of units of X = 2x 100 = 200
B 1 x No.of units of A = 1x 200 = 200
C 2 x No.of units of A = 2x 200 = 400

INVENTORY STATUS FILE

It consists of complete documentation of the inventory status of each item in the product structure, on-
hand quantity, safety stock level, quantity allocated and lead-time. The MRP system must retain the up to
date file of the inventory status of each item in the product structure. This file provides accurate
information about of every item controlled by the MRP system, which can then maintain an accurate
accounting of all inventory transactions, both actual and planned.

In practice some effort is required to keep inventory records accurate. Traditionally, inventory accuracy
has been assured by annual physical inventory count, where the plant is shut down for a day or two and
everything is counted from wall to wall. With cycle counting, a small percentage of the items are counted
each day by store room personnel. Errors are corrected in the records and an attempt is made to find and
correct the procedure which caused them.

THE MRP PROCESSING LOGIC

The MRP processing logic accepts the Master schedule and determines the components schedules for
successively lower level items of the product structures. It calculates for each item in each product
structure and for each time period in the planning horizon, how many of that item are needed i.e gross
requirement, how many units from the inventory are already available i.e available quantity, the net
quantity that must be planned on receiving in the new shipments (planned order receipts), and when
orders for the new shipments must be placed (planned order releases) so that all materials arrive just when
needed. This data processing continues until it has determined the requirements for all the items used to
meet the MPS.

TERMINOLOGY OF THE MRP COMPONENT RECORDS

The inventory record consists of

Allocated Quantity

The quantity of an item in inventory that has been committed for use and is not available to meet future
requirements.

Gross Requirement

The overall quantity of an item needed at the end of the period to meet planned output levels.

Planned output for end items is obtained from the MPS.

Item Level

It is the relative position of an item in the product structure. End items are upper-level items and
preliminary items in the product structure are lower level items.

Scheduled Receipts:

The quantity of an item that will be received at the beginning of a time period from the suppliers as a
result of orders that have already been placed.

Available Quantity
The quantity of an item expected to be available at the end of a time period for meeting requirements in
the succeeding periods.

It is calculated as

Scheduled receipts + Planned order receipts + Amounts available from previous period Gross
requirements.

Net Requirement

The net quantity of an item that must be acquired to meet the scheduled output for the period.

It is calculated as:

Gross requirements Scheduled receipts for the period amounts available from the previous period.

Planned Order Receipts

The quantity of an item that is planned to be ordered so that it will be received at the beginning of the
period to meet net requirements for the period.

Planned Order Release

The quantity of an item that is planed to be ordered and the planned time period for releasing this order
will result in the order being received when needed.

MRP OUTPUTS

The primary outputs of an MRP system are material requirements plan for each item and master material
requirement plan i.e. aggregate requirements for all the products. These would be used to generate the
following other reports and documents.

Order and Production release Schedules

These specify the amount and timing of future orders and production runs for each item.
Order releases

These authorize the purchases or production of items.

Change Reports

These highlight changes to the previous production and purchase plans.

Load Reports

These indicate the amount of each major production resource or department capacity that is to be utilized
with the plan.

MRP COMPUTATIONS

The computations are based on Lot-for lot which is a lot sizing policy in which order quantity equals to net
requirements for the period. The following points are required to be known before going for MRP
calculations.

The product structure showing how the end-product is made up of certain assemblies, sub-assemblies,
down to the components, a Bill of Materials being derived there from. The Bill of Material (BOM) is a
structured list of all the materials or parts needed to produce a particular finished product, assembly, sub-
assembly, manufactured part, or purchased parts. If there errors in BOM, the proper materials will not be
ordered and the product cannot be assembled and shipped. As a result, the ordered parts which are
available will wait in inventory while the missing parts are expedited. Management must insist that all
BOMs are accurate 100 percent. It is not too costly to have 100 percent accuracy. Rather it is too costly
to tolerate imperfect BOMs.

The lead times to produce/procure the different items at the various levels (from components to the end
products).

The demand or the delivery schedule of the end products.

 The current on hand stock of the various items as also the schedule receipts of the items being planned.

Computing the MRP for releasing a production/procurement order, involves following steps.

1) To determine the time the higher level item are required and in what quantity?

2) To determine the time when and in what quantity the next lower level item is required? This gives
the gross requirement of the material.

3) To obtain the real or net requirement, the 'on hand' and 'schedule to receive' quantities of the
item are deducted from the gross requirement. If there is sufficient quantity on hand then there is
no need to order for a further quantity.

4) The MRP so calculated are checked for viability vis--vis the production capacity. If there is
mismatch then the master schedule is modified and the MRP is calculated again
Example 1

Given the following information, how many units are on hand at the end of week 9? Which are the
weeks in which the orders may be placed?

Week

Lot- for Lot; 1 2 3 4 5 6 7 8 9

Requirements 90 10 140 55 5 15 115 95 100
Order quantity = 200
Scheduled receipts
Lead Time = 2 weeks
On hand at the
End of period 110
Planned order release

Solution:

On hand stock is 110 units. First step is to calculate the on hand stock for all the weeks. When we reach
week 3, the figure turns out to be negative. Therefore, week 3 is the period when there should be the
receipt of the order quantity. Since the lead time is two weeks, the order for this quantity should be placed
in the 1s' week (3-2=1). The rest of the computations are also done in the same manner. The summary of
calculation is shown in the table below.

MRP calculations:
Lot- for Lot; Week

Order quantity = 200 1 2 3 4 5 6 7 8 9

Requirements
Lead Time = 2 weeks 90 10 140 55 5 15 115 95 100
Scheduled receipts 200 200 200

On hand at the
End of period 110 20 10 -130/70 15 10 -5/195 80 -15/185 85
Planned order release 200 200 200

Since the on hand balance could turn negative in the weeks of 3, 6 and 8, there should be scheduled
receipts during those weeks. Giving two weeks' lead time (as shown in backward arrow), the order release
should be planned in the weeks of 1, 4 and 6. The on hand balance at the end of the week 9 works to be
85 units.

Example 2

An automobile industry uses MRP for its production materials planning. The table below provides the
information about a particular component X. The demand for this component is somewhat uncertain and
in order to take care of a sudden spurt in the demand, a safety stock of 50 items is recommended.

Lot- for Lot; Week

Order quantity = 250 1 2 3 4 5 6 7 8 9

Requirements
Lead Time = 3 weeks 40 100 70 150 20 20 50 100 70
Scheduled receipts 250

On hand at the
End of period 150
Planned order release

During which week/weeks should the receipts be planned? When should the orders be placed? What is the
expected on hand position at the end of week 9?

Solution:

Even with MRP, for some items safety stocks may be necessary. The safety stock requirement here is 50
units. So, any time the on hand balance drops below 50, the receipts should be scheduled in that period.
Based on the lead time, the order for the receipt of this batch of items can be planned. The computations
are furnished as follows:

MRP Calculations with Safety Stock:

Lot- for Lot; Week

Order quantity = 250 1 2 3 4 5 6 7 8 9

Requirements
Lead Time = 3 weeks 40 100 70 150 20 20 50 100 70
Scheduled receipts 250 250 250

On hand at the
End of period 150 110 260 190 40/290 270 250 200 100 30/180
Planned order release 250 250

Balance falls below the safety stock requirements in the weeks 4 and 9, The order release is therefore
planned for weeks 1 and 6, since the lead time is 3 weeks. On receipt of the material, the on hand position
at the end of the week 9 would be 280 units as calculated above.

CAPACITY REQUIREMENT PLANNING

So far, we have assumed that the company can produce or order any number of units of an item in any
time period. But, in practice, this is not the case. Capacity limitations exist throughout the production
system. An important benefit of the MRP is that it can identify potential bottlenecks and capacity
problems far enough in advance to adapt the schedule to them. Developing material requirements plan is
an iterative process.

Using the available data, a tentative production schedule and a corresponding material plan for each item
is derived (without imposing production or procurement limitations. The MRP uses these to generate load
reports for each production department. The load reports convert the material requirements into resource
i.e. either personnel or machinery requirements. If the loads are within the capacity limitations, the
material requirement plans are feasible and can be used.
BENEFITS OF MRP

As the MRP system is of dynamic nature, it reacts well to the changing conditions.
As the production-inventory data is computerized, management can make a new MRP computer
run to revise production and procurement plans that react quickly to the changes in the customer
demand as reflected in the master schedule.

Inventory reduction
MRP enables a manager to determine how many of components are needed and when, in order to meet
the master schedule. It avoids the costs of excessive inventory.

Reduction in production and delivery lead times

MRP identifies materials and component quantities, timings, availability, and procurement and
production actions required to meet delivery dead lines. MRP help avoid delays in production. It
prioritizes production activities by putting due dates on customers job orders.

Increased efficiencies

MRP provides close coordination among various works centers as products progress through them. MRP
focuses on having all components available at appropriately scheduled times. The information provided
by MRP encourages production efficiencies.

LIMITATIONS OF MRP

A computer is necessary.
The product- structure must be assembly oriented.
Bill of materials and inventory status information must be assembled and computerized.
A valid master schedule has to be prepared.
Unreliable inventory and transactions data from the shop floor can ruin a well planned MRP
system.
Training personnel to keep accurate records is a critical task.
MANUFACTURING RESOURCES PLANNING

The MRP systems were developed on a segregated basis. MRPII is an integrated information system that
shares data among and synchronizes the activities of production and other functional areas of the
business. The MRPII is a step ahead of the first generation MRP. It synchronizes all aspects of the
business.

The MRPII system co-ordinates sales, purchasing, manufacturing, finance and engineering by adopting a
focal production plan and by using one unified database to plan and update the activities in all the system.
The rationale for having these functional areas work together is the increased likelihood of these
developing a plan that works. Moreover, because each of these functional areas has been involved in
formulating the plan, they will have good knowledge of the plan and reason to work towards achieving it.

An initial plan must be revised often, based on the assessment of availability of various resources. Once
these have been decided, the master production schedule can be firmed up. At this point, material
requirement planning comes into play, generating material and schedule requirements. Next, the
management must make detailed capacity requirement planning to determine whether these specific
capacity requirements can be met. Adjustments in the master production schedule can be done if required.
When the actual work begins, a variety of reports help the managers to monitor the process and to make
any necessary adjustments to keep the operations on track. This is a continuing process, where the MPS is
updated and revised as necessary to achieve corporate goals.

MRP VS JUST IN TIME (JIT)

There are many differences between MRP and JIT. Some of them are listed below. The differences are explained in
number of factors such as: inventory level, lot sizes, setups, queues, vendors, quality, equipment maintenance, lead
times, and workers.

MRP uses a planning philosophy. The emphasis is on constructing a valid material plan and then executing according
to that plan. In contrast, JIT emphasizes eliminating waste. This is done by reducing inventories, exposing problems,
and pulling materials through the plant. MRP takes the plant as given; JIT does not. While MRP utilizes computers
and sophisticated information processing, JIT uses a simple visual control system. MRP produces shop orders,
purchase orders, exception notices and a great deal of paper work to control the plant. JIT has Kanban cards, which
serve shop orders or purchase orders. JIT has minimum paper work and does not require computerization.

JIT requires a stable master schedule which is uniform from day to day and hour to hour. MRP uses a highly variable
master schedule. JIT seeks to achieve low setup times and small lot sizes. MRP takes setup times as given. With MRP
systems, lot sizes are either set by edict or the tradeoff between setup and carrying cost. Long runs and large lot sizes
are considered desirable in traditional MRP approaches. With JIT vendors are considered part of the team. Long-term
relationship is encouraged, and frequent deliveries are expected. With MRP vendors are treated as adversaries.

With JIT systems, workers are responsible for producing quality parts just-in-time to support the next process.
Workers participate in problem solving and are charged with improving productivity and quality. With MRP workers
are a part of the system. They are controlled and specialized to a single job. The worker's role is to follow the plan.
Despite the differences, MRP and JIT systems have their particular areas of usefulness. In repetitive production, JIT
probably gives the best results. MRP systems give the best results for type job shop or small batch environment,
where production is non-repetitive

Manufacturing resource planning (MRP II)

Manufacturing Resource Planning (MRP II) has been developed by manufacturing

manages to address the planning and controlling of a manufacturing process and all of is related
support functions. It encompasses logically correct planning and control activities related to
materials, capacity, finance, engineering, sales and marketing. MRP II is universally applicable
to any manufacturing organization, regardless of its size, location, product or process.

MRP II is a management process for taking the business plan and breaking it down into
specific, detailed tasks that people evaluate, agree upon and are held accountable for. It involves
all departments viz., materials departments, engineering department that must maintain bill of
materials, sales/marketing department that must keep sales plan up to date, purchasing and
manufacturing departments that must meet due dates for bought-out items and in-house
manufactured items respectively.

From MRP I to MRP II: Manufacturing resourced planning (MRP II) is a natural
outgrowth of materials requirements planning (MRP I). Whereas, MRP I focuses upon priorities
of materials, CRP is concerned with time. Both material and time requirement are integrated
within the MRP system (i.e., MRP I). Beyond this, MRP II has been coined to close the loop by
integrating financial, accounting, personnel, engineering and marketing information along with
the production planning and control activities of basic MRP systems. MRP II is the heart of the
corporate management information system for many manufacturing firms.

Evolution of MRP II
 The earlier resource requirement planning systems were quite simple and
unsophisticated. The MRP technique was used for its most limited capability to determine what
materials and components are needed, how many are needed and when they are needed and when
they should be ordered so that, they are likely to be available when needed. In other words, MRP
simply exploded the MPS into the required materials and was conceived as an inventory control
tool or a requirements calculator. Later, the logic of MRP technique was extended to serve as the
key component in an information system for planning and controlling production operation and
purchasing. It was helpful to production and operations manage to determine the relative
priorities of shop orders and purchase orders. As a manufacturing planning and control system,
MRP laid the basic foundation for production activity control or shop-floor control.

Closed-Loop MRP: Later, during the 1970s, closing the loop in MRP systems was
thought of by experts in manufacturing management. The term closed-loop MRP means A
system built around material requirement planning (MRP I) and also including additional
planning functions such as master production scheduling and capacity requirement planning.
Once the planning phase is complete and plans have been accepted as realistic and attainable,
execution functions such as shop-floor control function (viz., input-output measurement, detailed
scheduling, dispatching, anticipated delay reports from shops and vendors, purchase follow-up
and control etc.) same into the picture. The closed-loop MRP system implies that, not only the
above elements included in the system, but also that there is feed back from the execution
functions so that, planning can be kept valid at al times. Further to the closed loop MRP
systems, the MRP I was improved to manufacturing resource planning (MRP II).

Manufacturing resource planning is a broader resource co-ordination system. In this, the

capabilities of closed-loop MRP are extended to provide information on financial resources,
personnel and labour budgets. It provides a means of simulating to provide information on the
use of various assured plans. Information about inventory investment levels, plant expansion
needs and work force requirements is useful for coordinating marketing, finance, engineering
and manufacturing efforts to achieve the overall business plan of the firm. MRP II is a direct
outgrowth and extension of the closed loop MRP.

INTEGRATED SYSTEM

MRP II is an integrated system for planning and control. In this process, a production
plan is developed from a business plan to specify production levels for each months for each
produt line for the next one to five years. Once the produtoin plan is accepted by all the
functional departments, it becomes a commitment for all concerned i.e. the production
department is expected to produce at he committed levels, the sales department to sell at these
levels and the finance department to ensure adequate financial resources for these levels of
production. based on the production plan, the MPS specified the quantities of specific products to
be produced every week. Rough-Cut capacity planning is done to determine whether the capacity
available is roughly adequate to sustain the proposed MRP. The MPS is then used to generate
material requirements and priority schedules for production. then detailed capacity planning is
done to determine whether the capacity is sufficient for producing specific components at each
work centre, during the scheduled time periods. After a realistic capacity-feasible schedule is
developed, the plan is executed. Purchase schedule and shop floor schedules are generated, based
on which work centre loadings, shop floor control and vendor follow-up activities can be
determined to ensure that the MPS is met.

SUMMARY
Materials requirement planning is an information system used to handle ordering of dependent demand
items. The planning process begins with customer orders that are used to develop a master production
schedule. MRPII is a second generation approach to planning that adds a broader scope MRP because it
links business planning, production planning, and the master production schedule.

Material Requirement Planning (MRP) is an information system that enables managers to improve the efficiency of
operations, shorten delivery lead times to customers, and reduce inventory levels in many organisations today. MRP
is applicable where end items are produced from many demand -dependent components, assemblies, and materials
with a known and stable sequence of product buildup. With information from bills of material, inventory status files,
and master production schedule, the MRP processing logic provides time-phased plans for procuring and utilizing
materials. MRP is especially useful in complex operations where new customer orders are arriving for a variety of
products and where shop orders for various components are in different stages of completion

GLOSSARY

Bill of Material (BOM): A list of all the materials, parts, and assemblies that make
up a product, including quantities, parent-component
relationships, and order of assembly.
Just-in-Time(JIT): It is defined as produce and deliver finished goods just in
time to be sold, sub assembles just in time to be assembled
into finished goods, and purchased materials just in time to
be transformed into fabricated parts
Material Requirement Planning (MRP): Is a system for planning the future requirements of
dependent demand items.
Master Production Schedule (MPS):
Product Structure:
A schedule for the production of end items (usually final
products). It drives the MRP process that schedules the
production of component parts.
Shows a products build-up. It shows diagrammatically the
components required to assemble it, their numbers, and the
sequence of assembly

REFERENCES

1) Lee J.Krajewski and Larry P.Ritzman, Operations Management Strategy and Analysis, 6th Edn,Pearson
Education, New Delhi, 2002
2) Roberta S.Russel and Bernard W.Taylor III, Operations Management 4th Edn, Pearson Education, New
Delhi, 2004
3) K.Aswathappa and K.Shridhara Bhat, Production and Operations management, 1st Edn, Himalayan
Publishing House, Mumbai, 2001

REVIEW QUESTIONS

1. What is MRP? What are the inputs and outputs required by the MRP processing logic?

2. What are the main advantages and limitations of the MRP?

3. Briefly describe MRPII?

4. Explain the role of master production schedule and how it relates to the other elements of an MRP

System.

5. Can the good points of MRP and of JIT be combined in a production system? If so, how explain.

6. The following figure shows the product structure of a product L. If 500 units of product L are required to be
manufactured, how many units of various sub-assemblies/components do we require?

Finished Product L Level 0

Sub-assembly
M (3) Level 1
N (2)

Level 2
Components O (1) P (3) Q(2)
7. Complete the MRP table shown below and find the amount of inventory on hand at the end of week
number 8

Lot- for Lot; Week

Order quantity = 500 1 2 3 4 5 6 7 8

Requirements
Lead Time = 4 weeks 150 150 150 150 200 200 180 320
Scheduled receipts 500

On hand at the
End of period 300 150 350 200
Planned order release