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. Obviously, MRP has two main characteristics , the known requirement and the known period of requirement (time).

Materials Requirements Planning (MRP) also known as MRP I, little MRP, mrp, or the original MRP is a set of techniques that takes the Master Production Schedule and other information from inventory records and product structure records as inputs to determine the requirements and schedule of timing for each item.

Based on a master production schedule, a Material Requirements Planning system :
 

  • Creates schedules identifying the specific parts and materials required to produce end items
     

  • Determines exact numbers needed
     

  • Determines the dates when orders for those materials should be released, based on lead times

 

MRP , by its nature, does not need carrying of any inventory ahead of requirement. It starts with the finalisation of the production plan in a firm.

The production plan then is used by the Materials management professionals to explode the "Bill of material" which is a complete detailing of the materials needed including their various components. It is exploded for the number of units to be produced, to obtain that product's exact requirement.

Since a given common part is used in many items , sub-assemblies etc, total requirement of that part is summed up to draw a consolidated requirement.

Since this exercise is done for a great number of materials computers become very useful for the purpose. After the Bill of material is finalised it's taken over by the Materials professionals of the firm who check the availability of any item.
A detailed action plan indicating the materials , quantity to be procured and most importantly the time these are required at is prepared. Accordingly, the orders are placed and the suppliers are asked to match the given delivery period.


In practice , under this system, the production material requirement are calculated on weekly basis. It then generates requisitions for each material to be delivered in the required quantity a given number of days prior to the start of manufacturing operation. Obviously, it puts more pressure on purchasing and production planning rather than on maintenance of inventory.
In MRP system master production schedule which is updated periodically is the force that directly initiates and drives subsequent activities of the purchasing and manufacturing functions.

 

Applicability of the MRP system :

It is best suited where production is not done on a continuous basis. It is ideally suited for the job shop operations environment.

Where the demand id directly dependent on the production of other specific inventory items or finished products. It is used where the demand of the individual components are dependent on the requirement of the main product.

It can be used where the flexibility is possible in placement of orders or delivery releases is to be done on short term basis

Inputs for MRP
MRP process is triggered by the Master Production Schedule (MPS) which indicates the production volume of finished products on weekly basis. MPS is the primary input. Therefore , for a successful run of the MRP , MSP must have a time schedule that is greater than the total lead time of the finished product.

Bill of Materials (BOM) which is a detailed item wise requirement document is the second input for MPR. It may contain multistage type of products that may require several stages of a number of components to be fitted or converted into leading to the making of the final or finished product.

Inventory record file (IRF) is the third input for MRP. It contains the status of an inventory item. It indicates the current stock position, the past timing and sizes of all orders
 

 

including the open orders for the item, the lead time for each item. IRF basically happens to be the past experience and serves as a good reference point for planning for the future MRP

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:
 

  • Determine the gross requirements for a particular item

  • 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

• 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:

•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
 

 

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

Benefits of MRP
The MRP is a framework for providing useful information for decision makers. 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

The MRP is also a very powerful tool since it takes into consideration changes in certain assumptions especially under uncertain conditions, especially when the inputs to the MRP system change because of the following realities in the production area:
 

  • Delays in scheduled receipts
  • Changes in planned order sizes because of capacity constraints
  • Changes in gross requirements which dictate changes in lot sizes at sub-component levels
  • Unavailability of raw materials for one sub-component which negates the need for a fellow subcomponent as both must be ready for the parent production
  • Utilization of same parts at different levels indicating the need to restructure the bill of materials and
  • Presence of price discounts or some other features which makes it advisable to purchase more than the anticipated need

Thus MRP can be summarise as being a system which is solely dependent upon three concepts:

  • Dependent demand
  • Inventory / Open order netting and
  • Time phasing on the basis of requirement period and the Lead time for each item

 

MRP system , thus , generates a complete set of planned orders for all manufactured parts and purchased materials based on information inputs. Accurate forecast and a timely lead time happen to be the main determinant of its success in a run.
 

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