Manufacturing Resources Planning

Introduction:-
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 and products are available for production and delivery to customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules and purchasing activities

MRP will plan production so that the right materials are at the right place
at the right time. MRP determines the latest possible time to product
goods, buy materials and add manufacturing value. Proper Material
Requirements Planning can keep cash in the firm and still fulfill all
production demands. It is the single most powerful tool in guiding
inventory planning, purchase management and production control. MRP
is easy to operate and adds dramatically to profits.

History of MRP
The scope of MRP in manufacturing
The basic function of MRP system includes 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, they may be unable to meet contracts to supply products by the agreed date.
• If a company purchases excessive quantities of an item, money is being wasted - the excess
quantity ties up cash while it remains as stock and may never even be used at all. However,
some purchased items will have a minimum quantity that must be met, therefore, purchasing
excess is necessary.
• 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.

What are the inputs to MRP?

The MRP system uses the information that relates a manufactured product to its components
and current information in the status of components to project the number of each component
required to support planned future production.
The basic inputs to run the MRP process are described below:
• Master production schedule (MPS) of end products - The MPS drives the MRP system. It
specifies the specific quantities of end items to be produced by a particular time period. The
end items may be finished products or the highest -level assemblies from which these
products can be built.
The MPS represents production output and not demand as such there would be situations
when demand may not be exactly the same as the MPS. The MPS may therefore consist of
the customer orders and the demand forecasts. The MPS therefore presents the quantities that
need to be produced and not what can be produced.
• Bills of materials (BOM) – The BOM shows the relationship of the components or sub-
assemblies with the main product in terms of the quantity needed per product and the lead
time involved to source such component.
• Inventory status file – presents the number of parts on hand and in transit.
• Lead time – the time the parts are expected to arrive (if the part is externally sourced) or
expected to be assembled (if the part is internally manufactured) from the time the order was
set.
How does MRP work?
There are two important questions to ask here. How much of an item is needed? When is an item
needed to complete a specified number of units, in a specified period of time? The MRP process
involves the following steps:
• Develop a master production schedule for the end item (this is the output of the aggregate /
production planning). The MPS is adjusted accordingly, as follows:
1. Determine the gross requirements for a particular item.
2. Determine the net requirements and when orders will be released for fabrication or
subassembly.
Net Requirements = Total Requirements – Available Inventory
Net Requirements = (Gross Requirements + Allocations) – (On Hand) + Scheduled Receipts
• Create schedules identifying the specific parts and materials required to produce the end items. The
bill of materials will be useful here.
• Determines the exact numbers needed.
• Determines the dates when orders for those materials should be released, based on lead times.

What are the outputs of MRP?

The basic outputs of the MRP system are the planned orders from the planned order release
row of the MRP matrix which details the timing and the quantity of subassemblies, parts and
raw materials used to plan purchasing and manufacturing actions.
Specifically, these outputs include:
• Purchase orders - sent to outside suppliers
• Work orders - to be released to the shop floor for in-house production
• Action notices or rescheduling notices - issued for items that are no longer needed as soon
as planned or for quantities that may have changed

The key to realizing the benefits from any MRP system is the ability of the inventory planner to use the
information well. The specific benefits of MRP include the following:
• Increased customer service and satisfaction
• Improved utilization of facilities and personnel
• Better inventory planning and scheduling
• Faster response to market changes and shifts
• Reduced inventory levels without reduced customer service

Problems With MRP:

The major problem with MRP systems is 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 outputted data will also be incorrect (GIGO: Garbage in, garbage out). Most
vendors of this type of system recommend at least 99% data integrity for the system to give useful
results.
Another major problem with MRP systems is the requirement(of the user) that the user specify how
long it will take a factory to make a product from its component parts (assuming they are all available).
 Eg: 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.
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.
Another potential drawback associated with MRP is that the systems can be difficult, time consuming,
and costly to implement. Many businesses encounter resistance from employees when they try to
implement MRP. For example, employees who once got by with sloppy record keeping may resent
the discipline MRP requires.

Case Study:

Example: Libiran Furniture

Libiran Furniture assembles dining room tables using bought-in parts of four legs and a top. These
have lead times of two and three weeks, respectively. Assembly takes a week. The company receives
orders for 20 tables to be delivered in week 5 of a planning period and 40 tables in week 7. It has
current stocks of 2 complete tables, 40 legs and 22 tops. When should the company order parts?
• Libiran's production schedule for dining room tables is shown below. This gives the “gross
requirements” for level 0 items - which are tables.
• Subtracting the stocks of the finished tables gives the net requirements. Then allowing a week for
assembly gives the start times shown in the following assembly plan. The “scheduled receipts” show
the number of units that become available in a week.
LEVEL 0 - Dining Room Tables
Requirements Week
1 2 3 4 5 6 7
Gross Requirements 20 40
Opening Stock 2 2 2 2 2
Net Requirements 18 40
Start Assembly 18 40
Scheduled Receipts 18 40

• To find the gross requirements for the Level 1 items (legs and tops), note that in week 4, there is a
net requirement of 18 tables, which translates into a GR of 72 legs and 18 tops.
• Similarly, the gross requirements for the other parts are:
• Legs: 18x4 = 72 in week 4 and 40 x 4 = 160 in week 6
• Tops: 18 in week 4 and 40 in week 6
• Subtracting stock on hand from these gross requirements gives the net requirements. To make sure
the parts arrive on time, they must be ordered in advance - that is, 2 weeks for legs and 3 weeks for
tops.
LEVEL 1 – Legs
Requirements Week
1 2 3 4 5 6 7
Gross Requirements 72 160
Opening Stock 40 40 40 40
Net Requirements 32 160
Start Assembly 32 160
Scheduled Receipts 32 160

LEVEL 1 – Tops
Requirements Week
1 2 3 4 5 6 7
Gross Requirements 18 40
Opening Stock 22 22 22 22 4 4
Net Requirements 36
Start Assembly 36
Scheduled Receipts 36