In this article we will discuss about Material Requirement Planning (MRP):- 1. Meaning of Material Requirement Planning (MRP) 2. Objectives of MRP 3. System Inputs 4. System Outputs 5. Benefits 6. Limitations.
- Meaning of Material Requirement Planning (MRP)
- Objectives of MRP
- Material Requirement Planning System Inputs
- MRP System Outputs
- Benefits of MRP
- Limitations of MRP
1. Meaning of Material Requirement Planning (MRP):
Material Requirement Planning is a special technique to plan the requirements of materials for production. For the manufacturing company to produce the end items to meet demands the availability of sufficient production capacity must be coordinated with the availability of all raw materials and purchased items from which, the end items are to be produced.
In other words, there is a need to manage the availability of dependent demand items from which the products are made. Dependent demand items are the components, i.e., materials or purchased items, fabricated parts or sub-assemblies that make up the end product.
One approach to manage the availability of dependent demand items is to keep a high stock of all the items that might be needed to procured the end items and when the on-hand stock drops below a present re-order level, the items are procured or bought as the case may be to replenish the stock to the maximum level.
However, this approach is costly due to the excessive inventory of components, fabricated parts and sub-assemblies to ensure high service level.
An alternative approach to manage these items is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the master production schedule (MPS). The technique is known as Material Requirement Planning (MRP) technique.
MRP is a computer-based system in which the given MPS is exploded into the required amounts of raw materials, parts and sub-assemblies needed to produce the end items in each time period (week or month) of the planning horizon. The gross requirement of these materials is reduced to net requirements by taking into account the materials that are in inventory or on order.
2. Objectives of MRP:
The objectives of material requirement planning in operations management are:
(a) It determines the quantity and timing of finished goods demanded.
(b) It determines the time phased requirements of the demand for materials, components and sub-assemblies over a specified planning time horizon.
(c) It computes the inventories, work-in-process batch sizes and manufacturing and packing lead times.
(d) It controls inventory by ordering materials and components in relation to orders received rather than ordering them from stock level point of view.
(e) It improves customer service by meeting delivery schedules promised and shortening the delivery lead times.
(f) It reduces inventory cost by reducing inventory levels.
(g) It improves plant operating efficiency by better use of productive resources.
3. Material Requirement Planning System Inputs:
Following are the basic three inputs of any MRP System:
a. Master Production Schedule (MPS):
This is the schedule of the quantity and timing of all end products to be produced over a specific planning horizon. The planning horizon should be long enough to cover the cumulative lead times of all components that must be purchased or manufactured to meet the end product requirement.
MPS is developed from customer’s orders or from forecasts of demand or both. MPS is the key input which drives the MRP programme as it tells what the company intends to produce. The maximum length of time that is planned in a MPS will depend on the company’s ability to forecast demand and its requirements, but a one year span is usually common.
b. Bill of Material (BOM) File:
A bill of material file, also known as product-structure file, is a computerized file listing all finished products, the quantify of raw materials, parts, sub-assemblies and assemblies in each product.
The MRP programme obtains information about the components needed to make an end product from BOM file. A bill of material not only lists all the required parts but also is structured to reflect the sequence of steps required to produce the end product.
The BOM has a series of levels, each of which represents a stage in the manufacture of the end product. The highest level or zero level of BOM represents the end product or the finished goods. The next lower level might represent the sub-assemblies that are combined to make the final assembly.
The next lower level might represent the parts needed to make the sub-assemblies and the bottom most level might represent the raw material from which the parts are made. Each component at any level of the BOM is identified by a unique part number. Determining all the lower-level components needed to make a finished product is called ‘exploding the requirements of the bill of materials.
c. Inventory Status File:
This file contains important information such as what items should be ordered and orders should be released. The file gives the complete and up-to-date information on the hand quantities, gross requirements, scheduled receipts and planned order releases for the item. It also tells about lot sizes, lead times, safety stock level, etc.
The gross requirements are total needs from all resources. Whereas the net requirements are ‘net’ after allowing for available inventory and scheduled receipt. Schedule receipts are quantities for which order has already been placed with vendor and in-house shop.
Planned receipts are quantities that will be order on a vendor or in-house shop. Planned order release indicates the quantity and date to initiate the purchase so that inventory will be received on schedule after the lead time offset.
The inventory status file keeps the data about the projected use and receipts of each item and determines the amount of inventory that will be available in each time period. If the projected available inventory is not sufficient to meet the requirement in a period, the MRP program will recommend that item to be ordered.
Besides the above, following may also be the inputs:
(i) Routing File:
This file specifies the sequence of operations required to manufacture components, sub-assemblies and finished goods.
(ii) Master Parts File:
It contains information about production time of sub-assemblies and components produced internally and lead time for externally procured items.
4. MRP System Outputs:
The outputs of any MRP System are:
a. Planned order schedule which is a plan of the quantity of each material to be ordered in each time period. The order may be purchase order on the suppliers or production orders for parts or sub-assemblies on production departments.
b. Changes in planned orders (reschedule notices).
c. Planning reports like inventory forecast, purchase commitment reports, stock-out incidences, etc.
d. To project capacity requirements.
5. Benefits of MRP:
MRP is a new way of managing manufacturing operations. It is not only to calculate how much material to order and when. It is a decision support system which provides timely and valuable information to operations managers.
The potential benefits of MRP system are:
MRP will substantially reduce inventory investment in dependent demand items while improving operational efficiency by removing the risk of shortages associated with the EOQ. The MRP system has numerous benefits over the fixed order size system (EOQ) for control of production items.
MRP system focuses on actual requirements. It is product oriented. Whereas EOQ focuses on replenishing supply and is part oriented. MRP is based on future production data while EOQ is on past demand data.
MRP helps in generating purchase order and in case of any changes, reschedule notices are also generated. These reports facilitate the purchase department in listing out the priority items and making them available in time.
c. Planning, Engineering and Schedule:
MRP plans orders for purchasing and shop scheduling for the quantity of items that must be available in each time period to produce the end items. The orders are planned for enough ahead to allow adequate time for scheduled completion of the final product without having material waiting unnecessarily for entry into a particular stage of the production process.
MRP can improve flow of work, thereby reducing intermittent delays and reducing the manufacturing cycle time for the jobs.
As one of the functions of MRP is to report the changes in demand, it improves the company’s ability to react to changes in customer orders, improves customer services by helping production meet assembly dates and helps to reduce delivery lead times.
Although MRP is an excellent tool for initial planning and scheduling, its greatest benefits may be its ability to re-plan and reschedule in view of unforeseen contingencies. The MRP system can predict shortages and overages soon enough so that something can be done to prevent them. It can help order priorities to help up-to-date by planning and re-planning order due dates.
MRP provides exception reporting whenever a mismatch of timing between demand and supply exists. It is a priority system: typical messages are to delay, expedite, or cancel an existing order, launch a new order, etc. It attempts to make the due date and need date coincide, so operations proceed as planned while inventory investment is minimised.
If a component to an assembly is not available when planned, MRP can reschedule all other components for the same assembly to a later date while rescheduling shop priority. MRP does not actually reschedule orders, but it prints messages specifying exactly where changes are appropriate. The decision to make changes remains with management personnel.
6. Limitations of MRP:
The effective operation and efficiency of an MRP system depends on the integrity of the files and records of relevant data. The quality is directly influenced by data accessibility, up-to-dateness, and accuracy. Lack of record integrity is the major reason for the failure of MRP system.
Computer- based MRP, even more than manual, will not perform satisfactorily with poor files and records. The outputs from computer-based MRP systems are dependent on its inputs.
Following are the weaknesses of MRP:
a. It assumes that lead times are known constants that are independent of the lot size.
b. It requires fixed routing for the items. It is not able to access and plan for the use of alternate routings.
c. The sequencing logic priorities order only by period or date. It provides no priority for sequencing with in a period based on similar set-ups, tooling, favoured customers, etc.
d. It is time consuming process as it requires let of processing and analytical times. This is achieved usually by lot of iterations.
e. To make MRP system effective, an organisation must have effective communication system, motivated personnel, right leadership and an effective computer system. It should also have support and commitment of the top management.
Supplier lead times must be short and reliable. The MPS must be prepared before the start of actual production. What is produced must be known with certainty and quantity and timing of receipts of raw materials and components must be dependable.