Materials Planning

Material requirement planning (MRP-I) is a

logical approach for determining raw materials, assemblies, sub-assemblies and parts needed to produce each end product on a short-term basis. It also provides the schedule, specifying when each of these should be ordered or produced. It deals with dependent demand situations. Starting from computing materials required and creating a schedule, it has evolved into manufacturing resource planning (MRP-II), and now into enterprise resource planning (ERP).

MRP-I
MRP-I determines how much of each item is

needed and when to produce a specified number of end products in a specified time period by evaluating the master production schedule (MPS), and bill of materials (BOM) and inventory record file. It is based on dependent demand. Dependent demand is caused by the demand for higher level of items (end products). For example, tyres, wheels and engines are dependent items of automobile.

Basic purposes of MRP System

To determine requirements of parts materials

needed for end products To create implementable schedules for receiving parts/materials To do capacity planning To control inventory To satisfy customer at optimum cost

RIGHT MATERIAL TO RIGHT POINT AT RIGHT TIME

Role of Materials Management in a Business

As a basic function of the firm As a manager of outside manufacturing:

Materials manager is answerable for purchase of items manufactured outside as production manager is answerable for parts produced inhouse. Hence, materials manager is rightly called manager of outside manufacturing. As a controller of cost: Major costs with materials include ordering or set-up costs, carrying costs, logistics costs (transportation and warehousing) and shortages or surpluses costs, besides the cost of purchased items.

Philosophy in MRP
MRP adopts the philosophy of expediting and

de-expediting. A lot of effort is put to expedite the supply when it is behind the schedule (schedule receipt is past due) or when the requirement shifts to an earlier date. It tries to de-expedite the supply if material is needed later than the schedule date (against the traditional approach where it was not a concern and it results in piling up of inventory).

Application areas
Most valuable for companies involved in assembly operations Assemble to stock/order: High benefits, for example, automobiles, watches, tools, appliances. Manufacture to order: High benefits; e.g.,

turbine, heavy machine tools. Process industries: Medium benefit; e.g., paper, chemicals, paint. Fabricate to stock/order: Low benefit; e.g., piston rings, electrical switches, bearings, gears.

Complexities associated with MRP

Number of parts/sub-assemblies that go into an end product may run

into several thousands.

Inventory of a part can exist in the form of raw material, work in

process (WIP) and finished goods. Keeping track of these make the problem complex.
Even with uniform demand of end products, requirement of parts at

different points of time becomes non-uniform. This could be due to several reasons like, batching of production/ procurement, same part going into different sub-assemblies etc. (see the example in next slide)
The firm as well as suppliers have capacity constraints. Changes in customer orders, lead times, machine breakdowns,

quality rejections and so forth bring uncertainty in the problem.

------- in the presence of the above factors, an optimal solution to the complex problem is extremely difficult. One can hope for a feasible solution at reasonable cost.

An example of non-uniform requirements subassemblies, X (Each of assemblies A, B, C requires one unit of subassembly x.)
Week 1 -> D(A) P(A) D (B) 20 60 10 10 2 20 10 3 20 4 20 60 10 10 5 20 10 6 20 7 20 60 10 10 8 20 10 9 20 10 20 60 10

P(B) D(C)
P(C) R(X)

40 5
15 115

5
-

5
-

5
15 75

40 5
40

5
-

5
15 75

5
-

40 5
40

5
15 75

MRP System
Master Production Schedule (MPS)

Bill of Materials (BOM)

Material Planning (MRP Computer Programme)

Inventory Record File

Primary Report: Schedule of planned orders Schedule of order release Changes in schedule

Secondary Report: Exception report Planning reports Reports for performance control

MRP System (cont.)

Three major inputs: (i) Master Production Schedule (MPS) (ii) Bill of Materials (BOM) (iii) Inventory Record File

Master Production Schedule

MPS shows the number of items to be

produced/received in specific period. Aggregate production planning (APP) specifies the optimal combination of product rates (for product groups, parts and subassemblies), work force level and inventory level for intermediate range (a year). It uses a variety of tools and techniques and forms the basis of MPS. MPS decides what we are going to make in terms of specific product configuration on specific quantities and on specific dates.

MPS (cont.)
Generally, MPS deals with the end product.

However, it may include major sub-assemblies or components, in case the product is large or quite expensive. All manufacturing systems have resource constraints such as inventory, material, capacity (equipment/labor), suppliers, money and storage. Also, there exist conflicting priorities among functional groups. Some of these are illustrated in the next page.

MPS (cont.)
Some of the conflicting goals are: Sales: Meet the customers promised date. Finance: Minimize inventory. Management: Maximize productivity and customer service, minimize resource needs. Manufacturing: Have level schedule and minimize set-ups. The last two factors pose a big challenge to prepare the master schedule. It takes many iterations to come to an acceptable plan.

MPS (cont.): Aggregate plan and MPS: example

Aggregat e Planning for cars MPS for diff. Car models Month Car 1 10000 2 9000

Week Model1 Model2 Model3

1 2000

4 4000

6 2000

7 1000 1000

1000

1000 2000

1000 2000

2000

MPS (cont.) conflicting facors

Time fences: Change in customer demand

disrupts the planning process. This calls for expediting and de-expediting.

Bill of Materials (BOM)

BOM shows the list of materials, parts, and

subassembly needed to make the end product and the sequence in which the product is created. It is also called the product structure file or product structure tree because it shows how a product is put together. It identifies each item and the quantity used to make higher order item of which it is a part.

Product structure tree

(PST)
A

B (2)

C (3)

D(2)

E (4)

F(2)

G(4)

E (1)

F (3)

BOM (cont.)
BOM files often list parts using indentation. There are two systems of indentation multi-

level and single level indentation Multi-level indentation identifies each item and the manner in which it is assembled. Each indentation signifies the lower order items or components of the higher order item. In single level indentation, listing is done assembly-wise (item and components). Components are separated from the item using indentation.

Multi-level indentation
A B(2)

D(2)
E(1) F(3) E(4)

C(3)
F(2) G(4)

Single level indentation

A B(2) C(3) B D(2) E(4)

C
F(2) G(4) D E (1) F(3)

Modular Bill of Material

It is the term used for item that is produced

and stocked as a subassembly (or, module). Many end items that are large expensive are better scheduled and controlled as modules.

A Planning Bill of Material

A planning bill of materials includes items

with fractional options. A planning bill can specify, for example, 0.4 of a part. It means that 40% of the units produced contain that part and 60% do not.

Low Level Coding

Identical parts may occur at different levels in different sub-

assemblies for each end items. Here, identical parts are placed at same level. It facilitates the computation of the parts.
A

B(2)

C(3)

D(2)

G(4)

E(1)

F(3)

E(4)

F(2)

Inventory Record File (IRF)

A variety of information is contained in IRF. These include: 1. DATA RELATED ITEM: Part number Description Lead time Standard cost Safety stock Order quantity Last years usage

IRF ( cont.)
2. INVENTORY DATA: Gross requirement Scheduled receipt on hand Planned order releases The inventory status file is kept up to date by posting inventory transaction as they occur.

Output Reports:
1. PRIMARY REPORTS: Schedule of planned orders, showing

quantity and time of orders Schedule of order release for executing the planned orders Changes in schedule, which include revision in due dates, order quantity, cancellation of orders etc.

Output Reports:
2. SECONDARY REPORTS: Performance control reports indicate deviations from plans in respect to quantity, due dates, stock outs, quality, costs, etc. Planning reports are connected with forecasting requirements and inventory. Exception reports present serious discrepancies, like late or over due orders, excessive scrap and non-existent parts.