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MATERIAL REQUIREMENT PLANNING (MRP)INTRODUCTION TO MATERIAL REQUIREMENT PLANNING (MRP)The variety of products to be manufactured and the nature of process demand good planning to meet the requirement of materials (MRP) during manufacture of products to meet the production schedule as per production plan.

The effective use of MRP system requires accurate bills of materials and inventory records.KEY TASKS OF MATERIAL REQUIREMENT PLANNING (MRP)For MRP to be effective, four key tasks must be performed properly:

The material plan must meet both the requirements of the master schedule and the capabilities of the production facility

The plan must be executed as designed

Inventory investment must be minimized through effective time-phased material deliveries, consignment inventories

Excellent record integrity must be maintained, which is considered an essential ingredient of a successful MRP programme

BENEFITS OF MRPImportant benefits of MRP are:Better response to customer orders as the result of improved adherence to schedules

Faster response to market changes

Improved utilization of facilities and labor

Reduced inventory levels

The above benefits are the result of use of a DEPENDENT INVENTORY SCHEDULING SUSTEMDEPENDENT DEMANDDemand for an item is dependent when relationship between the items can be determinedTherefore, once management receives an order for the final product, quantities for all components can be computedFor any product, all components of the product are dependent items, i.e., The Boeing aircraft operations manager who schedules production of one aircraft per week, would know the requirement down to the last rivetFor materials planning, dependent models are preferred to EOQ models

DEPENDENT INVENTORY MODELS:Effective use of dependent inventory models require that the operations manager know the following:Master production schedule (what is to be made and when)

Specifications or bill of material (materials and parts required to make the product)

Inventory availability (what is in stock)

Purchase orders outstanding (what is on order, i.e. expected receipts)

Lead times (how long it takes to get various components)MRP STRUCTUREMost MRP systems are computerized (manually is also possible)Ingredients of a Material Requirement Planning system:Master Production ScheduleBill of MaterialsInventory and purchase recordsLead times for each itemOnce these informations are available and accurate, the next step is to construct a GROSS MATERIAL REQUIREMENT PLAN.The GROSS MRP is a schedule, which shows when an item must be ordered from the suppliers if there is no inventory on hand or when the production of an item must be started to satisfy demand for the finished product by a particular date.Gross MRP is prepared when there is no inventory on handWhen there is inventory on hand, we prepare a NET REQUIREMENT PLAN:

MRP DYNAMICS:Bill of material and material requirements plans are altered as changes in design, schedules and production process occurs

Changes in MR can occur whenever master production schedule is modified

Regardless of the cause of any changes, the MRP model should be changed to have an update requirement schedule.

LOT SIZE DECISIONSWhen ever we have a net requirement, decision must be made about how much to order.This is called a LOT-SIZING decisionThere are a variety of ways to determine a lot size in an MRPFew of them are:Lot-for-LotEOQPartial Period Balancing (PPB)LOT SIZE DECISIONSLot-for-Lot: We produce exactly what is requiredMRP system should produce units only as needed with no safety stock and no anticipation of further orders, since MRP caters for dependent demandWhen frequent orders are economical, lot-for-lot can be efficientWhen set-up costs are significant, lot-for-lot can be expensive

Economic Order Quantity:EOQ is preferred when relatively constant independent demand exists, not when we know the demandEOQ is a statistical technique using averages (i.e. average demand for a year)MRP procedure assumes known (dependent) demand reflected in a master scheduleLOT SIZE DECISIONSPart Period Balancing (PPB):It is a more dynamic approach to balance set-up and holding costIt changes the lot size to reflect requirements of the next lot size in the futurePPB attempts to balance set-up and holding cost for known demandsIt develops an economic part period (EPP), which is the ratio of set-p cost to the holding cost.

e.g.: For set-up cost of $100 and holding cost of $1/unit item, EPP = 100/1 = 100 units, i.e., holding 100 units for one period would cost $100 (equal to the set-up cost).

Holding 50 units for 2 periods would cost $100 (2x1x50)

PPB adds requirement until the number of part periods approximate PPB. End of this Lecture