MRP [Materials Requirement Plan]

Popular concept in 1960&1970

Consists of a computer system & a
manufacturing information system
Does production scheduling and materials
planning
MRP system
MRP systems compute
• Net requirements for each inventory item
• Time-phase them
• 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
& products) for planned production and customer
delivery
Maintain the lowest possible inventory level
Plan
• Manufacturing activities
• Delivery schedules
• And purchasing activities
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 Scope
MRP System covers 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 MRP I [Materials
Requirement Planning]
Second phase is called MRP II [Manufacturing
Resources Planning] 4
MRP I [soft ware] is restricted to materials
resource only
• Attempts to minimize inventories
• Maintain adequate materials for production
process.
MRP II includes all resources required in
planning and control of production

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 Process of MRP I
MRPI 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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  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
REPORTS 7
 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
1. Improved business results [ROI, profits]
2. Improved manufacturing results
3. Better manufacturing control
4. Less inventory
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 5. Time phased ordering of materials
6. Less materials obsolescence
7. Higher reliability
8. More responsiveness to market demand
9. Reduced production costs
Disadvantages of MRP I
1. Due to small lot purchases high material
acquisition costs and high ordering costs
2. Stock out costs are more as safety stock
protection is low
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3. 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, marketing and logistics elements
• Entire set of activities involved in planning and
control of production
• It consists of variety of functions like
• Production planning
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 • Resource requirements planning
• Master production scheduling
• Materials requirement planning [MRP I]
• Shop floor control
• Purchasing

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 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
DRP II covers all resources relevant to
distribution
• Warehouse space
• Man power levels
• Transport capacity [eg. trucks, rail cars]
• 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
Central Supply Facility 23
 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?

Arrival from
Order to 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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