Why MRP?

EOQ Model Assumptions - Demand / Consumption is constant & Uniform - Price is not varying In reality Demand fluctuates Accordingly, TIMING & QUANTITY of purchase to vary Production Scheduling of Internal Components will vary This calls for Inventory Model suitable for Dependent Demand (to overcome the problems of timings & tedious record keeping of various Inventory Transactions )

Inventory Management Dependant Demand How does MRP work?

1. MRP studies Future Production Schedules. 2. Broken down into Sub-Assys., Parts, Components, R Ms (taking into consideration BoM called Explosion of BoM) 3. Verifies existing levels of Inventories for each RM & WIP
4.

Finally develops a Schedule of Purchase Orders.

(considering who are Vendors, what is their Lead Time )

Sales and operations planning approach in SAP R/3 Sales Forecasting Sales and Operations Planning Demand Management

Detailed Scheduling

MRP

Production

Purchasing

FORECAST DEMAND

BILLS OF MATRIALS

CHECK INVENTORY

CAPACITY PLAN MATERIAL PLAN

CALCULATION OF SCHEDULE

PRODUCTION ORDERS

PURCHASE ORDERS

INVENTORY FOR FORECAST DEMAND

PRODUCTION OF STOCK

Material Requirement Planning (MRP)

Master schedule Inventory records and Projected status

MRP MRP

Product Structure File (BOM, lead times)

Requirement for buy items

Requirements for Make Items

Inputs of MRP System

MPS When & How many units of F.G. are required. BoM BoM is developed on assumption that the final product is made of hierarchy of assemblies, sub-assys, components & parts Inventory Record file Keeps complete record of each material held. Also contains supplementary info. on Vendors & Ld. Time

MRP II - Manufacturing Resource Planning

(MRP extended to support other functions like Production, Shop Floor Scheduling, Purchase Order Processing, Billing etc.) MRP II is broadly divided into 3 parts

Product Planning Fn. Translating Corp. Objectives into Sales Plans, Production Plans, Finance Plans Operational Planning Fn. MRP + additional attention to both Short & Long term physical constraints. Operational Control Fn. Purchasing Parts, Extending Work Orders, Monitoring Material Movement, Checking worker performance etc.

Merits & Demerits of MRP

Ability to reduce price, becoming Cost Competitive.

Low Inventory Levels Material tracking & Production Scheduling easier.

Improved Response to Market Demand / Customer service

X MRP is merely a planning tool. It needs proper implementation

Problems for Implementation

Inadequate employee training & involvement.

Inaccurate & obsolete data.(e.g. BoM not updated, wrong L/T) Inappropriate Product Environment Cost of MRP varies between Rs 1L to Rs 2 Cr., besides other costs like Hardware up-gradation, Employee Training, Hence this is justified only if one has large Nos. of parts to be handed. It will also fail if the computer system is error prone or data is inaccurate.

MRP - SOLVED PROBLEM Product X is made of two units of Y and three of Z. Y is made of one unit of A and two units of B. Z is made of two units of A and four units of C. Lead time for X is 1 week; Y- 2 weeks; Z - 3 weeks; A - 2 weeks; B - 1 week and C - 3 weeks. a. b. Draw the bill of materials (product structure tree). If 100 units of X are needed in week 10, develop a planning schedule showing when each item should be ordered and in what quantity?

Level 0
Level 2

X 1 wk Y (2) 2 wk A (1) 2 wk B (2) 1 wk Z (3) 3 wk

Level 1 Level 2

A (2) 2 wk

C (4) 3 wk

Week No. 3 X LT=1 Y LT=2 Z LT=3 A LT=2 B LT=1 C LT=3 120 0

7 200

300 600 200 600 400 120 0

9 10 100 100 200 300

200 400