Introduction to MPR (Material Requirement Planning)
Industry is getting modern face day by day. The management function is adopting new techniques to improve overall productivity. Materials management is also accepting and implementing such modern techniques. Examples: MRP and ERP.
What is MRP :
• MRP converts the Master schedule for the final product into a detailed schedule for raw materials and all other items required for production.
• MRP helps to understand about order time, the delivery time of all the materials necessary for smooth production function.
• The logic of MRP is based on the principle of dependent demand. i.e. the direct relationship between the demand of one item and demand of its main assembly (e.g. wheel and bicycle).
• MRP projects not only the demand but also the timing of the inventory demand.
• MRP determines quantity and timing for material planning.
- Reduction in Inventory Cost: By providing the right quantity of material at the right time to meet the master production schedule, MRP tries to avoid the cost of excessive inventory.
- Meeting Delivery Schedule: By minimizing the delays in materials procurement, production decision making, MRP helps avoid delays in production thereby meeting delivery schedules more consistently.
- Improved Performance: By streamlining the production operations and minimizing the unplanned interruptions, MRP focuses on having all components available at the right place in the right quantity at the right time.
Functions of Material Requirements Planning:
1. To ensure that material and components are available for production.
2. To ensure that final products are ready for dispatch.
3. To maintain minimum inventory.
4. To ensure the right quantity of material is available at the right time to produce the right quantity of products.
5. To ensure the planning of all manufacturing processes.
6. To reduce investment in work in process inventories.
Components of MRP system
Inputs to MRP:
1. Supplier lead time: supplier lead time need to be an essential part of how you plan production.
2. On hand inventory: If resource material is available in inventory, then there is no necessity to purchase new. This saves money. This helps to optimize on the materials already in the inventory. Keeping promises of customers is also easy.
3. Current forecasting: if there is knowledge about what you have already forecasted, then this can alert the organization to make changes that need to be made. This helps to line up demand and inventory.
4. Work and machine center capacity:
• Knowledge person capacity is a must to do MRP.
• Whenever a customer wants material, we should make it available to the customer.
• If capacity at work is known, then the planning of material available for dispatch can be calculated.
• As per such calculation, we can give promises to the customers.
5. Order history and season:
• There should be an idea about seasonal trends.
• This knowledge helps to optimize production rate as per the demands. Also, in addition to the above, the following are a few more inputs for effective MRP.
6. Price trends of the materials.
7. Import policy of the government.
Input Files of MRP :
- Master Production Schedule (MPS): MPS is designed to meet the market demand (both the firm orders and forecasted demand) in the future in the taken planning horizon. MPS mainly depicts the detailed delivery schedule of the end products. However, orders for replacement components can also be included in it to make it more comprehensive.
- Bill of Materials (BOM) File: BOM represents the product structure. It encompasses information about all sub-components needed, their quantity, and their sequence of buildup in the end product. Information about the work centers performing buildup operations is also included in it.
- Inventory Status File: Inventory status file keeps an up-to-date record of each item in the inventory. Information such as item identification number, quantity on hand, safety stock level, quantity already allocated and the procurement lead time of each item is recorded in this file.
Output Of MRP :
- Planned Orders Receipts: This is the order quantity of an item that is planned to be ordered so that it is received at the beginning of the period under consideration to meet the net requirements of that period. This order has not yet been placed and will be placed in the future.
- Planned Order Release: This is the order quantity of an item that is planned to be ordered in the planned time period for this order that will ensure that the item is received when needed. Planned order release is determined by offsetting the planned order receipt by the procurement lead time of that item. Planned Order Release includes inventory forecast, purchase commitment reports, stock-out incidences, etc.
- Order Rescheduling: This highlights the need for any expediting, de-expediting, and cancellation of open orders, etc. in case of unexpected situations.
MRP Outputs Reports :
The material requirements planning program generates a variety of outputs that can be used in the planning and management of plant operations.
These outputs include:
1. Order release notice, to place orders that have been planned by the MRP system
2. Reports showing planned orders to be released in future periods
3. Rescheduling notices, indicating changes in due dates for open orders
4. Cancellation notices, indicating cancellation of open orders because of changes in the master schedule
5. Reports on inventory status
The outputs of the MRP system listed above are called primary outputs by Orlicky. In addition, secondary output reports can be generated by the MRP system at the user’s option.
These reports include:
1. Performance reports of various types, indicating costs, item usage, actual versus planned lead times, and other measures of performance
2. Exception reports, showing deviations from schedule, orders that are overdue, scrap, and so on
3. Inventory forecasts, indicating projected inventory levels (both aggregate inventory as well as item inventory) in future periods
Advantages of material resource planning:
1. Minimum levels of inventories are possible.
2. As inventories are minimum, the costs related to them are also less.
3. Material tracking becomes easy.
4. It is ensured that the economic order quantity is achieved for all lot orders.
5. Material planning smoothens capacity utilization.
6. MRP allocates the correct time to products as per the demand forecast.
7. Quicker response to the change in demand.
8. Better machine utilization.
9. No issues of shortages.
10. Better inventory turnover.
Limitations of MRP:
- Material planning is highly dependent on the inputs it receives from other systems or departments. If the input information is not correct than output for material planning will also be incorrect.
- The material planning system requires proper training for end-users, as to get maximum out of the system.
- The material resource planning system requires a substantial investment of time and capital.
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