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1 Chapter 1 : Material requirements planning - Wikipedia Some of the benefits of material requirements planning (MRP) software include elimination of excess inventory, cost savings, and simplified production planning. But what exactly is MRP? According to Wikipedia, material requirements planning (MRP) is described as, "a production planning and inventory control system used to manage manufacturing. CAPP The MRP II system integrates these modules together so that they use common data and freely exchange information, in a model of how a manufacturing enterprise should and can operate. The MRP II approach is therefore very different from the "point solution" approach, where individual systems are deployed to help a company plan, control or manage a specific activity. MRP II is by definition fully integrated or at least fully interfaced. The vision for MRP and MRPII was to centralize and integrate business information in a way that would facilitate decision making for production line managers and increase the efficiency of the production line overall. In the s, manufacturers developed systems for calculating the resource requirements of a production run based on sales forecasts. In order to calculate the raw materials needed to produce products and to schedule the purchase of those materials along with the machine and labor time needed, production managers recognized that they would need to use computer and software technology to manage the information. Originally, manufacturing operations built custom software programs that ran on mainframes. Material requirements planning MRP was an early iteration of the integrated information systems vision. MRP information systems helped managers determine the quantity and timing of raw materials purchases. Information systems that would assist managers with other parts of the manufacturing process, MRPII, followed. While MRP was primarily concerned with materials, MRPII was concerned with the integration of all aspects of the manufacturing process, including materials, finance and human resources. However, the hardware, software, and relational database technology of the s was not advanced enough to provide the speed and capacity to run these systems in real-time, [1] and the cost of these systems was prohibitive for most businesses. Nonetheless, the vision had been established, and shifts in the underlying business processes along with rapid advances in technology led to the more affordable enterprise and application integration systems that big businesses and many medium and smaller businesses use today. MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human resources. The goal of MRPII is to provide consistent data to all members in the manufacturing process as the product moves through the production line. Paper-based information systems and non-integrated computer systems that provide paper or disk outputs result in many information errors, including missing data, redundant data, numerical errors that result from being incorrectly keyed into the system, incorrect calculations based on numerical errors, and bad decisions based on incorrect or old data. In addition, some data is unreliable in non-integrated systems because the same data is categorized differently in the individual databases used by different functional areas. MRP allows for the input of sales forecasts from sales and marketing, or of actual sales demand in the form of customers orders. These demands determine the raw materials demand. While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the development of a detailed production schedule that accounts for machine and labor capacity, scheduling the production runs according to the arrival of materials. Data about the cost of production, including machine time, labor time and materials used, as well as final production numbers, is provided from the MRPII system to accounting and finance. MRP II systems can provide: Better control of inventories. Page 1

2 Chapter 2 : Benefits of Material Requirements Planning ERP FM Material Requirements planning system Material Requirement Planning (MRP) happens to be the best model of dependent demand pattern of Inventory. Under it, the requirement of an item is predetermined as it depends upon the actual need of it, triggered by certain production schedule. It integrates data of production schedules with inventory and BOM to calculate purchasing and shipping schedules for the materials that are required to build the final product. The three basic steps of MRP are: Determine what quantity is on hand, in an open purchase order, planned for manufacturing, already committed to existing orders, and forecasted. These requirements are specific to each company and each company location and change with the date. Create suggestions for materials that you consider critical, expedited, and delayed. Delineate the materials for the manufacturing orders, purchase orders, and other reporting requirements. A common MRP system requires inputs like: This suggests to the particular data you get from clients and includes unique cases and consistent requesting designs. This is an expectation from the marketplace about how much likely request there will be for an item or services. Both forecast demand and customer orders feed into the master production schedule. The MPS is an arrangement that an organization creates for production, staffing, or stock. It is the production future arrangement that includes the amounts you need to produce the products in a specified time period. It additionally includes stock costs, creation costs, stock data, supply, lot size, lead time, and development capacity. Bill of Materials BOM: Also called an item structure document, this incorporates the subtle elements and amounts of the raw materials, assemblies, and parts that make up each finished result. These are the raw materials and the finished items that you either have available or have effectively requested. After MRP receives the input, it generates the output. There are four main outputs. This is the prescribed buying plan that includes the request you provide for provisions to send the materials. This details the raw materials, assemble items, and parts needed to make the finished product with amounts and dates. This details the work that goes into creating the finished result, including which divisions are in charge of what part, what materials are fundamental, and what the begin and end dates are. MRP produces essential and auxiliary reports. The essential reports include every one of the three of the above â those that deal with production and inventory planning and control. Auxiliary reports are those that detail things, for example, performance control, exception data e. Challenges in Material Requirement Planning Despite the fact that using an MRP system is better than cobbling together an arrangement of spreadsheets and hand estimations. There are still some issues that emerge The greatest issue is data integrity. Data that is either not up to date or has blunders gives an output that is inaccurate and can wind up costing your business serious money. You should carefully screen inventory and BOM information. Mistakes frequently happen amid cycle-count adjustments, input and shipping, and reporting of scrap, damage, waste, and production. Barcode scanning and pull systems can minimize these types of errors. For instance, the MRP framework could show that there is a lot of raw material accessible for production when, actually, that crude material is on the opposite side of the world. Staff power is additionally not generally represented in MRP. In these cases, the MRP makes a limit issue. In addition, lead times can throw off MRP. The required lead time can change based on the product. MRP assumes that the lead time is always the same for each product, regardless of changes in supply, required quantities, or the possible simultaneous production of other products. Make sure that raw materials and segment parts are always close by for production, to keep the production plan running easily. Support just-in-time JIT production by enabling the most minimal levels of materials and stock to be accessible and still keep production on track. Plan production timetables to take care of customer demand for items in a timely manner. Insufficient raw materials available prevents planned production and client delivery due dates to be missed, making contracts to be canceled. Overbuying raw materials makes money be tied up and inaccessible for use in different territories of the organization, for example, hiring, marketing, or shipping Excess stock risks item out of date quality and ties up money that could be utilized somewhere else in the business By connecting raw material delivery to production schedules and customer purchases, MRP systems keep production running smoothly. Now you know why material requirement planning is important for any Page 2

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4 Chapter 3 : Material Requirements Planning (MRP) - benefits, Mrp inputs, Mrp processing When talking about the Material Requirements Planning flavor of it, MRP is definitely suitable for make-to-stock manufacturers. Make-to-order and mixed mode manufacturers also benefit from MRP, but only to the extent that (a) their production lots are medium to large and (b) the product does not vary much. Unlike manufacturing companies years ago, nowadays manufacturers compete not only with other local businesses but also with other operations across the globe, both big and small. To make manufacturing operations as effective as possible one area to focus on is the cost reduction and operations optimization. A big part of optimization processes depends on how manufacturing companies plan their operations, control inventory and organize logistics. To help companies make better decisions in these areas material requirements planning MRP I has been introduced in the s. While today it has evolved to manufacturing resource planning MRP II, its core benefits are relevant more than ever. Benefits of material requirements planning. The proper material requirement planning setup helps companies to achieve three main goals. First, it helps manufacturers to plan and schedule their production operations in such a way that it will not require any excessive inventory. Why is this such an important factor? Main reason is capital preservation and an effective use of working capital. Having less excessive inventory on hand means that companies do not tie up their valuable cash in inventory. They can remain liquid and use the funds on other needs, like expanding their operations, investing in new production lines or organizing additional marketing campaigns. Also by not allocating warehouse space to excessive inventory, businesses can save on rental costs or use the space for a better purpose. When done correctly, material requirements planning helps to ensure that there is enough component available for production. It also helps to determine how much finished goods and by what date will be available for shipping to the customer. In material management everything is interconnected, the amount of finished goods planned for shipping depend heavily on the amount of material being purchased for the future product batch. Knowing how much finished goods there will be available in the future, manufacturer can better plan its sales. This information also helps companies to better plan their purchasing activities and delivery schedules. This is especially critical for businesses with several operational facilities in different countries. Knowing exact quantities and time when the products is being shipped helps manufacturers to save both on shipping and storage costs. How does material requirements planning work? Below is the descriptive image of how this logic works. First, based on the future demand information, the reorder point and replenishment quantity are being determined. When reorder point is reached, a material quantity in stock falls below the certain point, a purchase order is triggered. This moment a full stock is ordered from the supplier Replenishment. When this happens, it is important that that the amount of material remaining in warehouse at the reorder point should be enough to cover demand by the time new material batch will be available Demand during Lead Time. Risks of not having proper material requirements planning system What are the biggest risks of not using any system for material requirements planning? The biggest would be of course not being able to meet contract obligations to supply product to the client at the agreed time. Customer is not interested to know the reason why the product that has been ordered long time ago has not arrived as promised. Most probably such a client will change to a new supplier entirely or will ask for substantial discounts in the future shipment. Another big risk, which was mentioned before, is that money will be wasted by being tied up in unused material stock. These funds are literally dead, until finished product are sold and paid for by client. In some cases, this could easily be from half a year to several years. While tying up working capital in inventory does not poses any direct risks to the company, it easily can slow its development progress and makes it more vulnerable to sudden demand changes. Conclusion The importance and the need for Material Requirements Planning in the small and medium enterprises and to bigger companies as well, is great. While there are still a considerable amount of companies relying on past data and their experience to determine amount of materials to purchase, more and more companies are switching to some sort of material requirement planning solutions. MRPEasy offers one of such readymade solutions. This makes it a single piece of software any small or medium manufacturer would need for their manufacturing resource planning. Page 4

5 Chapter 4 : Benefits of Material Requirements Planning - Cornerstone Consulting, Inc. Material requirement planning will assist manufacturing companies to plan out the production schedule and determine when materials need to be ordered for which products. While material requirement planning can be done by hand, MRP systems save companies a substantial amount of time and money. Changing the dynamics of the problem leads to a multi-item analogue of the dynamic lot-size model. Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors, production reporting errors, and system issues. Many of these type of errors can be minimized by implementing pull systems and using bar code scanning. Systems require that the user specify how long it will take for a factory to make a product from its component parts assuming they are all available. Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory. A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have plenty of it thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory and inter-communicate the needs in order to enable each factory to redistribute components to serve the overall enterprise. This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example, systems like variety reduction and engineering, which makes sure that product comes out right first time without defects, must be in place. 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. Parts must be booked into and out of stores more regularly than the MRP calculations take place. Note, these other systems can well be manual systems, but must interface to the MRP. The other major drawback of MRP is that it fails to account for capacity in its calculations. This means it will give results that are impossible to implement due to manpower, machine or supplier capacity constraints. In the MRP II or MRP2 concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. Solutions to data integrity issues[ edit ] Source: Cycle count â The best practice is to determine why a cycle count that increases or decreases inventory has occurred. Find the root cause and correct the problem from occurring again. Scrap reporting â This can be the most difficult area to maintain with any integrity. Start with isolating the scrap by providing scrap bins at the production site and then record the scrap from the bins on a daily basis. One benefit of reviewing the scrap on site is that preventive action can be taken by the engineering group. Receiving errors â Manual systems of recording what has been received are error prone. The best practice is to implement the system of receiving by ASN from the supplier. The supplier sends an ASN advanced shipping notification. When the components are received into the facility, the ASN is processed and then company labels are created for each line item. The labels are affixed to each container and then scanned into the MRP system. Extra labels reveal a shortage from the shipment and too few labels reveal an over shipment. Some companies pay for ASN by reducing the time in processing accounts payable. Shipping errors â The container labels are printed from the shipper. The labels are affixed to the containers in a staging area or when they are loaded on the transport. Production reporting â The best practice is to use bar code scanning to enter production into inventory. A product that is rejected should be moved to an MRB material review board location. Containers that require sorting need to be received in reverse. Replenishment â The best replenishment practice is replacement using bar code scanning, or via pull system. Depending upon the complexity of the product, planners can actually order materials using scanning with a min-max system. Demand driven MRP is a multi-echelon formal planning and execution technique with five distinct components: Out on the open ocean the break walls have to be 50â feet tall, but in a small lake the break walls are only a couple feet tall. In a glassy smooth pond no break wall is necessary. Buffer profiles and level â Once the strategically replenished positions are Page 5

6 determined, the actual levels of those buffers have to be initially set. Based on several factors, different materials and parts behave differently but many also behave nearly the same. DDMRP calls for the grouping of parts and materials chosen for strategic replenishment and that behave similarly into "buffer profiles. These buffer profiles are made up of "zones" that produce a unique buffer picture for each part as their respective individual part traits are applied to the group traits. Dynamic buffer levels allow the company to adapt buffers to group and individual part trait changes over time through the use of several types of adjustments. It also takes advantage of the new demand-driven or pull -based approaches. When these two elements are combined then there is the best of both worlds; relevant approaches and tools for the way the world works today and a system of routine that promotes better and quicker decisions and actions at the planning and execution level. Highly visible and collaborative execution â Simply launching purchase orders POs, manufacturing orders MOs and transfer orders TOs from any planning system does not end the materials and order management challenge. These POs, MOs and TOs have to be effectively managed to synchronize with the changes that often occur within the "execution horizon. DDMRP defines a modern, integrated and greatly needed system of execution for all part categories in order to speed the proliferation of relevant information and priorities throughout an organization and supply chain. These five components work together to greatly dampen, if not eliminate, the nervousness of traditional MRP systems and the bullwhip effect in complex and challenging environments. The Demand Driven Institute claims the following: In utilizing these approaches, planners will no longer have to try to respond to every single message for every single part that is off by even one day. This approach provides real information about those parts that are truly at risk of negatively impacting the planned availability of inventory. DDMRP sorts the significant few items that require attention from the many parts that are being managed. That means companies will be better able to leverage their working and human capital as well as the huge investments they have made in information technology. It is effectively an amalgam of MRP and kanban techniques. As such, it incorporates the strengths of both but also the weaknesses of both; hence its limited adoption. Page 6

7 Chapter 5 : Advantages and Disadvantages of an MRP system, Assignment Help, Materials Requirement P Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goodsâ such as raw materials, component parts, and subassemblies. XtravaganT Material requirements planning MRP is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goodsâ such as raw materials, component parts, and subassembliesâ for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and derailleurs. The first MRP systems of inventory management evolved in the s and s. They used mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components. Before long, MRP was expanded to include information feedback loops so that production personnel could change and update the inputs into the system as needed. The next generation of MRP, known as manufacturing resources planning or MRP II, also incorporated marketing, finance, accounting, engineering, and human resources aspects into the planning process. A related concept that expands on MRP is enterprise resources planning ERP, which uses computer technology to link the various functional areas across an entire business enterprise. MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. Implemented and used properly, it can help production managers plan for capacity needs and allocate production time. But MRP systems can be time consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Companies must maintain current and accurate bills of materials, part numbers, and inventory records if they are to realize the potential benefits of MRP. The bill of materials is a listing of all the raw materials, component parts, subassemblies, and assemblies required to produce one unit of a specific finished product. Each different product made by a given manufacturer will have its own separate bill of materials. The bill of materials is arranged in a hierarchy, so that managers can see what materials are needed to complete each level of production. MRP uses the bill of materials to determine the quantity of each component that is needed to produce a certain number of finished products. From this quantity, the system subtracts the quantity of that item already in inventory to determine order requirements. The master schedule outlines the anticipated production activities of the plant. Developed using both internal forecasts and external orders, it states the quantity of each product that will be manufactured and the time frame in which they will be needed. As Stevenson explained, the master schedule separates the planning horizon into time "buckets," which are usually calendar weeks. The schedule must cover a time frame long enough to produce the final product. This total production time is equal to the sum of the lead times of all the related fabrication and assembly operations. It is important to note that master schedules are often generated according to demand and without regard to capacity. An MRP system cannot tell in advance if a schedule is not feasible, so managers may have to run several possibilities through the system before they find one that works. The inventory records file provides an accounting of how much inventory is already on hand or on order, and thus should be subtracted from the material requirements. It also includes other details for each item, such as supplier, lead time, and lot size. MRP processing first determines gross material requirements, then subtracts out the inventory on hand and adds back in the safety stock in order to compute the net requirements. As Stevenson explained, the main outputs from MRP include three primary reports and three secondary reports. The primary reports consist of: The secondary reports generated by MRP include: Although working backward from the production plan for a finished product to determine the requirements for components may seem like a simple process, it can actually be extremely complicated, especially when some raw materials or parts are used in a number of different products. Frequent changes in product design, order quantities, or production schedule also complicate matters. Some of the main benefits include helping production managers to minimize Page 7

8 inventory levels and the associated carrying costs, track material requirements, determine the most economical lot sizes for orders, compute quantities needed as safety stock, allocate production time among various products, and plan for future capacity needs. The information generated by MRP systems is useful in other areas as well. Production managers, who must balance work loads across departments and make decisions about scheduling work, and plant foremen, who are responsible for issuing work orders and maintaining production schedules, also rely heavily on MRP output. Other users include customer service representatives, who must be able to supply customers with projected delivery dates, purchasing managers, and inventory managers. First, MRP relies upon accurate input information. If a small business has not maintained good inventory records or has not updated its bills of materials with all relevant changes, it may encounter serious problems with the outputs of its MRP system. The problems could range from missing parts and excessive order quantities to schedule delays and missed delivery dates. At a minimum, an MRP system must have an accurate master production schedule, good lead time estimates, and current inventory records in order to function effectively and produce useful information. 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. Or departments that became accustomed to hoarding parts in case of inventory shortages might find it difficult to trust the system and let go of that habit. The key to making MRP implementation work is to provide training and education for all affected employees. Sawaya wrote in Industrial Management. Key personnel must be convinced that they personally will be better served by the new system than by any other alternative. Rather, it represents an effort to expand the scope of production resource planning and to involve other functional areas of the firm in the planning process," such as marketing, finance, engineering, purchasing, and human resources. From that point, MRP is used to generate material requirements and help production managers plan capacity. MRP II systems often include simulation capabilities so managers can evaluate various options. Should Its Simplicity Remain Unchanged? Managing the Product through the Plant. Production Planning and Controlling. Other articles you might like: Page 8

9 Chapter 6 : Material Requirements Planning Benefits of Material Requirements Planning Material requirements planning should be possible by people however it will take a much more noteworthy arrangement of time as opposed to having PC software that is the sole reason for existing is for boosting the benefits do all the work. Materials and Resource Requirement Planning Materials and Resource Requirement Planning Introduction Success of an operation department of any organization is dependent upon an efficient production plan. One of the key essential of a production plan is material and manufacturing planning system. Material requirement planning plays a pivotal role in assembly-line production. Material requirement planning is a system based approach, which organizes all required production material. Material requirement planning is an information system for production planning based on inventory management. The basic components of material planning are: Material planning provides information that all the required raw material and products are available for production. Material planning ensures that inventory level are maintained at its minimum levels. But also ensures that material and product are available whenever production is scheduled, therefore, helping in matching demand and supply. Material planning provides information of production planning and scheduling but also provides information around dispatch and stocking. Objective of Material Requirement Planning Material requirement planning is processed which production planning and inventory control system, and its three objectives are as follows: Primary objective is to ensure that material and components are available for production, and final products are ready for dispatch. Another primary objective is not only to maintain minimum inventory but also ensure right quantity of material is available at the right time to produce right quantity of final products. Another primary objective is to ensure planning of all manufacturing processes, this scheduling of different job works as to minimize or remove any kind of idle time for machine and workers. Advantages and Disadvantages of Material Resource Planning As with every system based process, material resource planning also has its advantages and disadvantages, and they are as follows: Advantages of Material Resource Planning It helps in maintain minimum inventory levels. With minimum inventory levels, material planning also reduces associated costs. Material tracking becomes easy and ensures that economic order quantity is achieved for all lot orders. Material planning smoothens capacity utilization and allocates correct time to products as per demand forecast. Disadvantages of Material Resource Planning Material planning is highly dependent on inputs it receives from other systems or department. If input information is not correct than output for material planning will also be incorrect. Material planning requires maintenance of robust database with all information pertaining inventory records, production schedule, etc. Material planning system requires proper training for end users, as to get maximum out of the system. Material resource planning system requires substantial investment of time and capital. Material Resource Planning - Inter dependency of Business Function Material planning not only benefits operation department but is also beneficial to the other department of organization. They are as follows: Material planning is useful in determining cash flow requirement based on material requirements and final dispatch schedules. It helps procurement team in scheduling purchase of necessary material. It helps the sales team in determining delivery dates for final products. Implementation of Material Resource Planning Implementation and success of material resource planning dependent on following factors: Acceptability of by top management about advantages and benefits Proper training and participation of all workers and personnel Precision and accuracy of input data for accurate and reliable results. Page 9

10 Chapter 7 : What is Material Requirement Planning MRP importance MRP benefits Material Requirement Planning (MRP) is a system used for planning, production & inventory control. It integrates data of production schedules with inventory and BOM to calculate purchasing and shipping schedules for the materials that are required to build the final product. Enterprise Resource Planning ; Inventory Control Systems Material requirements planning MRP is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for items of dependent demand. Dependent demand items are components of finished goodsâ such as raw materials, component parts, and subassembliesâ for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and bike chains. The first MRP systems of inventory management evolved in the s and s. They used mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components. Before long, MRP was expanded to include information feedback loops so that production personnel could change and update the inputs into the system as needed. The next generation of MRP, known as manufacturing resources planning or MRP II, also incorporated marketing, finance, accounting, engineering, and human resources aspects into the planning process. A related concept that expands on MRP is enterprise resources planning ERP, which uses computer technology to link the various functional areas across an entire business enterprise. MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, the component parts, and the raw materials needed to produce the final product within the established schedule. MRP is designed to answer three questions: Implemented and used properly, it can help production managers plan for capacity needs and allocate production time. But MRP systems can be time consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Companies must maintain current and accurate bills of materials, part numbers, and inventory records if they are to realize the potential benefits of MRP. The bill of materials is a listing of all the raw materials, component parts, subassemblies, and assemblies required to produce one unit of a specific finished product. Each different product made by a given manufacturer will have its own separate bill of materials. The bill of materials is arranged in a hierarchy, so that managers can see what materials are needed to complete each level of production. MRP uses the bill of materials to determine the quantity of each component that is needed to produce a certain number of finished products. From this quantity, the system subtracts the quantity of that item already in inventory to determine order requirements. The master schedule outlines the anticipated production activities of the plant. Developed using both internal forecasts and external orders, it states the quantity of each product that will be manufactured and the time frame in which they will be needed. The master schedule separates the planning horizon into time "buckets," which are usually calendar weeks. The schedule must cover a time frame long enough to produce the final product. This total production time is equal to the sum of the lead times of all the related fabrication and assembly operations. It is important to note that master schedules are often generated according to demand and without regard to capacity. An MRP system cannot tell in advance if a schedule is not feasible, so managers may have to run several possibilities through the system before they find one that works. The inventory records file provides an accounting of how much inventory is already on hand or on order, and thus should be subtracted from the material requirements. The inventory records file is used to track information on the status of each item by time period. This includes gross requirements, scheduled receipts, and the expected amount on hand. It includes other details for each item as well, like the supplier, the lead-time, and the lot size. MRP processing first determines gross material requirements, then subtracts out the inventory on hand and adds back in the safety stock in order to compute the net requirements. The main outputs from MRP include three primary reports and three secondary reports. The primary reports consist of: The secondary reports Page 10

11 generated by MRP include: Although working backward from the production plan for a finished product to determine the requirements for components may seem like a simple process, it can actually be extremely complicated, especially when some raw materials or parts are used in a number of different products. Frequent changes in product design, order quantities, or production schedule also complicate matters. The importance of computer power is evident when one considers the number of materials schedules that must be tracked. Some of the main benefits include helping production managers to minimize inventory levels and the associated carrying costs, track material requirements, determine the most economical lot sizes for orders, compute quantities needed as safety stock, allocate production time among various products, and plan for future capacity needs. The information generated by MRP systems is useful in other areas as well. There is a large range of people in a manufacturing company that may find the use of information provided by an MRP system very helpful. Production planners are obvious users of MRP, as are production managers, who must balance workloads across departments and make decisions about scheduling work. Plant foremen, responsible for issuing work orders and maintaining production schedules, also rely heavily on MRP output. Other users include customer service representatives, who need to be able to provide projected delivery dates, purchasing managers, and inventory managers. MRP systems also have several potential drawbacks. First, MRP relies upon accurate input information. If a small business has not maintained good inventory records or has not updated its bills of materials with all relevant changes, it may encounter serious problems with the outputs of its MRP system. The problems could range from missing parts and excessive order quantities to schedule delays and missed delivery dates. At a minimum, an MRP system must have an accurate master production schedule, good lead-time estimates, and current inventory records in order to function effectively and produce useful information. 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. Or departments that became accustomed to hoarding parts in case of inventory shortages might find it difficult to trust the system and let go of that habit. The key to making MRP implementation work is to provide training and education for all affected employees. It is important early on to identify the key personnel whose power base will be affected by a new MRP system. These people must be among the first to be convinced of the merits of the new system so that they may buy into the plan. Key personnel must be convinced that they personally will be better served by the new system than by any alternate system. One way to improve employee acceptance of MRP systems is to adjust reward systems to reflect production and inventory management goals. Rather, it represents an effort to expand the scope of production resource planning and to involve other functional areas of the firm in the planning process," such as marketing, finance, engineering, purchasing, and human resources. From that point, MRP is used to generate material requirements and help production managers plan capacity. MRP II systems often include simulation capabilities so managers can evaluate various options. Should Its Simplicity Remain Unchanged? Production Planning and Controlling. Page 11

12 Chapter 8 : Manufacturing resource planning - Wikipedia Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for items of dependent demand. For a good reason, people ask, what are the advantages and what are the disadvantages of MRP. Still, even though being one of the predominant ways in organizing inventory and production planning, it surely has its benefits and drawbacks. As with any methodological approach to management, the key advantage is that by applying consistent discipline, you can get the benefits it is meant to deliver. And MRP certainly gives you much better results than acting randomly or trying to invent the wheel yourself, like many do. On time availability of the right materials required for production. Decrease in capital cost due to decreased inventory levels and optimal use of production resources. Collecting the business data for analysis and better planning. Bogus Disadvantage â Data Accuracy Risk Much has been written about the drawbacks of MRP, one that gets mentioned a lot is that the lack of data accuracy can cause problems with your planning. Well, this is not specific to MRP. If you punch wrong numbers into your accounting system or the calculator, you simply get wrong results. As to the data input error that might happen â unless you are an engineer-to-order manufacturer, consuming mostly unique parts, you probably have enough safety stock available. So that minor input errors will not have a significant impact on your inventory levels or on-time delivery. As with every methodology and software, you need the persistence to implement it. First of all, you need to be sure, if this is the right thing for your company. MRP is an excellent methodology in general, but it gives you the benefits only when applied under appropriate circumstances. So, these are not so much as disadvantages, but rather considerations to avoid failure: When talking about the Material Requirements Planning flavor of it, MRP is definitely suitable for make-to-stock manufacturers. Make-to-order and mixed mode manufacturers also benefit from MRP, but only to the extent that a their production lots are medium to large and b the product does not vary much. Otherwise, it may be enough to use a common-sense approach to ordering and manufacturing what is exactly needed, and MRP gives you just a framework how to not miss the important bits. With MRP, you have to keep clean records and enter precise data. With the benefit of getting suggestions what, how much and when to buy or manufacture, comes the responsibility of keeping stock and production records. For the production planning to be correct, you need to record finished operations and manufacturing orders as soon as production gets completed. What are the alternatives to MRP? There have been many alternative or complementary methodologies around since MRP was invented. They all address the same problem from different angles, certainly bringing great results and complementing each other. Though, either of these does not change the basic requirement of keeping records, making decisions and using common sense. One of the key complaints, especially for the un-devoted, is the seemingly sophisticated nature of MRP. Even if the concept may be straightforward, the implementation of MRP methodology into various packages has still left a lot to be desired in the simplicity-of-use department. This is why MRPEasy got developed â to make the implementation and use of the best-known manufacturing planning methodology as easy as possible. Chapter 9 : The importance of material requirements planning Benefits Of Material Requirements Planning By: Kelly Hunter Material Requirements Planning (MRP) is a type of software based production planning, which uses an inventory system to organize different manufacturing processes. Page 12