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Today we will discuss what Material Requirements Planning is and how we can use it in our organization.
Material Requirements Planning was introduced in the 1970’s. Much of the credit goes to three individuals by the names of Joseph Orlicky, George Plossl, and Oliver Wight. The American Production and Inventory Control Society (APICS), which was endorsed by Orlicky, Plossl, and Wight, was also credited with the introduction of MRP.
MRP is a system that controls inventory levels, plans production, helps supply management with important information, and helps with the manufacturing control system with respect to the production of assembled parts.
There are certain environments or situations in which it is better and more efficient to use MRP. These environments and situations are as follows.
MRP can do many things to help your company succeed. Probably the most important quality of MRP is the fact that it will help your company with inventory. It plans production so that the right materials are at the right place at the right time.
Here are some qualities of MRP. MRP determines the latest possible time to product goods, buy materials, and add manufacturing value. Proper MRP can keep cash in the firm and still fulfill all production demands.
The three basic steps of MRP are 1) Identifying requirements for items to be included in an MRP run, 2) Running the MRP and creating suggestions for action, and 3) firming the suggestions to release manufacturing orders and purchase orders.
The MRP system looks at several components of demand in order to create its suggestions. The requirements include the above items. Many of these requirements are included in the master production schedules and inventory master files that will be discussed later in this presentation.
The MRP system is company, location, and date sensitive. It is important that all data that is entered into the MRP system is accurate. Elements such as outdated bills of material, and lead times can negatively impact the results or MRP.
At the end of each day, the MRP system will be run to identify items as critical, expedite, or delay. The MRP system will suggest if you need to order more of a certain material by classifying into the three categories. Critical items are items of immediate importance that should be taken care of right away. Expedite items are items that need to be sped up so that it is completed in less than the normal lead time. Delay items are item that are not of vital importance and can be delayed for the benefit of other items. If you wish, the MRP system can also give greater details such as expected receipt dates, and customer orders making up the demand.
Once it has been run, the MRP system will suggest that the user send out a purchase order or manufacturing order. The user can then choose on whether to accept the suggestions of the system or change them. For example the MRP system will suggest that a purchase order be sent to order 100 units of material X. The user may accept this suggestion or change the information to fit what he thinks should be ordered. The MRP system keeps track of a vendor master file to ease of sending faxes, emails, or printouts of orders.
The is an overview of how the MRP system works. The Orange boxes indicate the inputs into the MRP system. The MRP system then processes the information and delivers outputs as indicated by the yellow boxes.
The three main inputs into the MRP system are product structure files, master production schedules, and inventory master files. These three main inputs summarize the input requirements described earlier.
The product structure file contains a bill of material for every item produced. In other words, this file contains all the component parts for a larger item. For example if you are producing a car, the component parts for the car would be the screws, steel, rubber, and so on. Not only does the product structure contain all the component parts, it also supplies information for in which order the product is to be assembled. The MRP system accesses the product structure file to determine which component items need to be scheduled.
The master production schedule specifies which end items or finished products the company is to produce, how many are needed, and when they are needed. The numbers that are on the master production schedule represent production, not demand, may be a combination of customer orders and demand forecasts, and gives what needs to be produced.
This file includes all the numbers from inventory. The MRP system keeps track of your inventory and when more items need to be ordered. It is important that you inventory numbers are accurate from the beginning in order for the MRP system to work properly.
During the process, the the system uses an MRP matrix to record the calculations that are made. From the inputs discussed earlier in the presentation, the system calculates the gross requirements, scheduled receipts, projected on hand, net requirements, planned order receipts, and planned order releases.
Some of the terms that are used with the MRP matrix are defined above. This should help the user understand how the MRP calculates everything.
More terms defined.
Here’s an example of how the MRP process works. This is a preliminary schedule that the MRP system gathered from the master production schedule, inventory master file, and product structure file. The question now is in what period should orders be released and what should be the size of those orders?
For period 1 we first want to calculate the projected on hand. This is done by subtracting the gross requirements in period one from the sum of the scheduled receipts in period 1, projected on hand from the previous period, and the planned order releases from the (t-l) period where t is the current period and l is the lead time. So the projected on hand for period 1 is 20 minus 10. The planned order releases are in sizes of 25 so we have planned order release of 25 for period one. Period two we repeat the same process. Now in period 3 we need to calculate the net requirements along with the projected on hand. The projected on hand = ((20+25)-25) = 20. The net requirements is calculated by subtracting the scheduled receipts (0) in the period plus the projected on hand in the previous period (20) from gross requirements (25) which equals 5. You want to repeat this process for all the periods. In the end the answer should be that orders should be released in periods 1,2,3,4, and 5 for quantities of 25,25,25,30, and 25 respectively.
The MRP system delivers two main outputs along with various other reports. The two main outputs are manufacturing orders which can be released to shop floors for in-house production and purchasing orders which are sent to outside suppliers. The various reports offer suggested changes in previous plans or existing schedules.
Hubbell light manufactures industrial lighting products for schools, malls, NASA, and other companies. They have a strong reputation of making good-quality products but also have a reputation of not meeting due dates. Their work is very specialized, in a job shop environment, and they make complex products. They have 3,200 end items. Some of which consist of 15,000 component parts that can be configured into over 5 million different final products. This situation would involve complex bills of material, production schedules and inventory files. This is an ideal situation to implement MRP.
Hubbell lighting decided to implement an MRP system to improve its overall capabilities and completion times. Before the MRP implementation, Hubbell Lighting completed less the 75% of its orders on time. After the MRP implementation, on time orders rose to 97% with 2% of orders completed with 1 to 2 days of the promised completion time.
Read the Summary above.
All information on this slide show was gathered from the above resources.
Material requirement planning presentation
Material Requirement Planning (MRP)
Contributors to MRP• Joseph Orlicky• George Plossl• Oliver Wight• American Production and Inventory Control Society
What is MRP?• Computerized Inventory Control• Production Planning System• Management Information System• Manufacturing Control System
When to use MRP• Job Shop Production• Complex Products• Assemble-to-Order Environments• Discrete and Dependent Demand Items
What can MRP do?• Reduce Inventory Levels • Reduce Purchasing Cost• Reduce Component • Improve Production Shortages Schedules• Improve Shipping • Reduce Manufacturing Performance Cost• Improve Customer • Reduce Lead Times Service • Less Scrap and Rework• Improve Productivity • Higher Production• Simplified and Accurate Quality Scheduling
What can MRP do?• Improve • Reduce Overtime Communication • Improve Supply• Improve Plant Schedules Efficiency • Improve Calculation of• Reduce Freight Cost Material Requirements• Reduction in Excess • Improve Competitive Inventory Position
Three Basic Steps of MRP• Identifying Requirements• Running MRP – Creating the Suggestions• Firming the Suggestions
Step 1: Identifying the Requirements• Quantity on Hand• Quantity on Open Purchase Order• Quantity in/or Planned for Manufacturing• Quantity Committed to Existing Orders• Quantity Forecasted
Step 1: Important Information MRP is…..• Company Sensitive• Location Sensitive• Date Sensitive
Master Production Schedule• Schedule of Finished Products• Represents Production, not Demand• Combination of Customer Orders and Demand Forecasts• What Needs to be Produced
Inventory Master File• On-Hand Quantities• On-Order Quantities• Lot Sizes• Safety Stock• Lead Time• Past-Usage Figures
MRP Process• Schedules the Production of all items using an MRP Matrix MRP Matrix Item: Low-Level Code: Lot Size: Lead Time: PD 1 2 3 4 5 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases
Terms Defined• Item – name or number for the item being scheduled• Low-Level Code – the lowest level of the item on the product structure file• Lot Size – order multiples of quantity• Lead Time – the time from when an order is placed to when it is received• PD – Past Due Time Bucket, orders behind schedule
Terms Defined• Gross Requirements – demand for an item by time period• Scheduled Receipts – material already ordered• Projected on Hand – expected ending inventory• Net Requirements – number of items to be provided and when• Planned Order Receipts – net requirements adjusted for lot size• Planned Order Releases – planned order receipts offset for lead times
Example of the MRP ProcessItem: A Low-Level Code: 1Lot Size: 25 Lead Time: 1 PD 1 2 3 4 5Gross Requirements 10 15 25 25 30Scheduled Receipts 25Projected on Hand 20Net RequirementsPlanned Order ReceiptsPlanned Order Releases
Example of the MRP ProcessItem: A Low-Level Code: 1Lot Size: 25 min Lead Time: 1 PD 1 2 3 4 5Gross Requirements 10 15 25 25 30Scheduled Receipts 25Projected on Hand 20 10 2 20 20 15Net Requirements 5 5 10P 25 25 25
MRP Outputs• Manufacturing Orders• Purchasing Orders• Various Reports
Hubbell Lighting Case• Manufactures Industrial Lighting Products• Good-Quality Products• Poor at Meeting Due Dates• Work is Specialized for Each Customer• Job Shop Environment• Complex Products
Hubbell Lighting CaseBefore MRP Implementation After MRP Implementation• Less than 75% of orders • 97% of orders completed completed on time on time • 2% of orders completed with 1 to 2 days after due date
Summary of MRPMRP is a…..• Computerized Inventory Control• Production Planning Systemthat…..• Schedules Component Items as Neededwhich will…..• Track Inventory and…..• Help you in many other aspects of business
ReferencesRussell, Roberta S., and Bernard W. Taylor III. Operations Management. 3rd Edition: Prentice Hall, 2000Grubbstrom, Robert W. Material Requirements Planning and Manufacturing Resource Planning. 03/12/2002. http://www.itbp.com/opsmanagement/iebm/material_requirements.htm.Vormittag Associates, Inc. System 2000 MRP. 03/12/2002. http://www.vaihome.com/s2000mrp.htm.Inventory Solutions. What is MRP?. 03/12/2002. http://www.inventorysolutions.org/def_mrp.htm.