MRP [Materials Requirement Plan]

Popular concept in 1960&1970

Consists of a computer system & a
manufacturing information system
Does production scheduling and materials plan
MRP system
MRP systems compute net requirements for
each inventory item, time-phase them, and
determine their proper coverage

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 MAJOR ASSEMBLY

SUB
SUB
ASSEMBLY II SUB
ASSEMBLY I ASSEMBLY II

A1 A2 B1 C1 C2 C3 D1 D2 A3 A4 C4 D3 D4 C5 B2 A5 D5

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 Objectives
Ensure the availability of materials -components
and products for planned production and customer
delivery
Maintain the lowest possible inventory level
Plan manufacturing activities, delivery schedules
and purchasing activities
Process
MRP starts with, customer’s demand
[independent demand] and explodes the time and
need for components based on the demand for end
product
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 Scope: MRP System focuses on inbound
logistical area
Key elements of MRP system
Master Production Schedule
Bill of Materials
Inventory Status Files
MRP Program
Outputs & Reports
Development
First phase is called MRPI[Materials
Requirement Planning] and the second phase is
called MRPII[Manufacturing Resources Planning]
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 MRP I is a computer based production and
inventory control system [soft ware] that attempts
to minimize inventories while maintaining
adequate materials for production process.

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 Customers
orders Forecast
inventory Engineering
s
transactions changes

Master
production
schedule
[which product to
produce, in what
Inventory Bill of
quantity & when]
status file materials file
[finished items, [product
WIP, planned structure and
orders routing]
MRP I
SYSTEM

PLANNED SCHEDULES
AND VARIOUS OTHER
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REPORTS 6
 When does it get applied?
The process follows an intermittent system
Demand is dependent
Purchasing dept., their suppliers and company’s
own manufacturing system is flexible enough to
handle deliveries on weekly basis
Advantages of MRP I
Improved business results[ROI, profits]
Improved manufacturing results
Better manufacturing control
Less inventory

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 Time phased ordering of materials
Less materials obsolescence
Higher reliability
More responsiveness to market demand
Reduced production costs
Disadvantages of MRP I
Due to small lot purchases high material
acquisition costs and high ordering costs
Stock out costs are more as safety stock
protection is low
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A limitation of software as adapting to specific
situations is difficult. So modification of the
software is necessary
 MRP II
MRP I is updated and expanded to include
financial and marketing and logistics elements.
MRP II includes entire set of activities involved in
planning and control of production.It consists of a
variety of functions like production planning,
resource requirements planning, master production
scheduling, materials requirement planning[MRP
I], shop floor control and purchasing
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 MRP II

Orders Bill of materials Inventory

[production plan] records

Material requirement
planning [MRP]

Capacity requirement
planning [CRP]

No
Realistic?

yes
Execute capacity
plans

Execute materials plan

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 Benefits of MRP II
Inventory reductions of one fourth to one third
Higher inventory turn over
Improved consistency in on-time customer
delivery
Reduction in purchasing costs due to less urgent
purchases
Minimization of workforce overtime

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 DRP is a technique of Distribution
Management
DRP concept has evolved in two phases, DRPI
(Distribution Requirement Planning) & DRP II
(Distribution Resources Planning)
DRP I deals with inventory planning whereas
DRP II covers all resources relevant to
distribution - warehouse space, man power levels,
transport capacity [eg. trucks, rail cars] and
financial flows

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  DRP I
Applicable to outbound logistics
Determination of inventory requirement at
points of consumption for short spans of time
 Plan to move inventory in the distribution
channel in response to the above
 It is a time phased plan, dynamic and flexible
in nature
Customer dependent planning, depends on the
changing market environment
Not organization dependent

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Coordination responsibility once the finished
goods are produced
Planning is realistic as it is closer to real time
Overall inventory levels are low
Response time to real time market requirement
is low

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  DRP II
Distribution Resource Planning [DRP II ]is an
extension of DRP I
DRP II applies the time phased logic of DRP I
to replenish inventories in multi echelon
warehousing systems
DRP II extends DRP I to include the planning of
key resources in a distribution system –ware
house space, man power levels, transport capacity
[eg. trucks, rail cars] and financial flows

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 As an extension of DRP I, DRP II uses the
needs of distribution to drive the master schedule,
controlling the materials planning
 DRP PROCESS
 Planning tool for DRP is schedule
Schedule for each SKU at each distribution
facility on daily, weekly or monthly basis
Integration of the above schedules and overall
requirement planning for the regional warehouse
and central supply facility

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 Marketing benefits
 Increased service levels - improved OTD,
reduced Customer Complaints
Effective new product introduction plans
Ability to anticipate shortages
Improved inventory coordination
Logistics benefits
Reduced distribution costs
Reduced inventory levels
Decreased warehouse space requirement as
inventory levels are low
Lesser back orders
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Improved inventory visibility & co-ord. between
manufacturing and logistics
Constraints
Needs accurate forecast
Sources of errors in the system
Inaccuracy in forecast quantity
Inaccuracy in forecast location
Inaccuracy in forecast time
Variable performance cycles
System nervousness-frequent rescheduling
causing confusion
Uncertainty buffers
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 How does a DRP system work?
Consider a distribution net work with three
distribution centers catering to the needs of the
market
One central facility that supplies inventory to
three distribution centers
Central facility is supplied by the production
facility planned as per MRP
DRP modifies the MRP to the advantage of the
organization

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 DRP & MRP LINK
DISTRIBUTION CENTER I
LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 55, ORDER QUANTITY
500
WEEKS
DETAILS 0 1 2 3 4 5 6 7 8

WEEKLY - 50 50 60 70 80 70 60 50
REQ

STOCK 352 302 252 192 122 542 472 412 362

WHEN & 500 500

HOW
MUCH?

Arrival From
Order to Central Supply Facility
Central Supply Facility
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 DISTRIBUTION CENTER II
LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 40, ORDER QUANTITY 150
WEEKS
DETAILS 0 1 2 3 4 5 6 7 8

WEEKLY - 20 25 15 20 30 25 15 30
REQ

STOCK 140 120 95 80 60 180 135 145 110

WHEN & 150 150

HOW
MUCH?

Arrival from
Order to Central Supply Facility
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 DISTRIBUTION CENTER III
LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 115, ORDER QUANTITY 800

DETAILS 0 1 2 3 4 5 6 7 8
WEEKS
WEEKLY - 115 115 120 120 125 125 125 120
REQ
STOCK 1020 905 790 670 550 425 300 175 855

WHEN & 800 800

HOW
MUCH?

Order to Arrival from

Central Supply Facility Central Supply Facility
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 LEAD TIME IS 3 WEEKS, SAFETY STOCK IS 287, ORDER QUANTITY 2200
CENTRAL SUPPLY FACILITY
From I & II From III

WEEKS 0 1 2 3 4 5 6 7 8
DETAILS

WEEKLY - - - 650 - - 800 - -

REQ
STOCK 1250 1250 1250 600 600 600 2000 2000 2000

WHEN & 2200 2200

HOW MUCH?

TO MRP SCHEDULE FROM PRODUCTION

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