6:17 PM
Brief Introduction
By the early 1960s many companies were using computers to perform routine accounting functions. It was essential to try to extend the use of computers to the other applications of production management as well One of the first experiments in this area was made by IBM, where Joseph Orlicky and others developed what came to be called Material requirement planning (MRP). MRP emerged from the practical side of inventory control. The basic function of MRP is revealed by its name – to plan material requirements. MRP is used to co-ordinate orders from both within the plant and from outside. Outside orders are called purchase orders, while orders from within are called, jobs. MRP deals with two basic dimensions of production control: quantities and timing. The system must determine appropriate production quantities of all type types of items, from final product that are sold, to components used to build final products, to inputs purchased as raw materials. It must also determine production timing (i.e. job start times) that facilitates meeting order due dates. In many MRP systems, time is divided into buckets, although some systems use continuous time. A bucket is an interval that is used to break time and demand into discrete chunks. As a result MRP is a management information system for providing a basis for production decisions when what is manufactured has a composite structure and when lead-time is important features.
Despite its success the MRP process has significant restrictions in its use, particularly with respect to its use as a suitable planning system within dynamic manufacturing environment.
The originators of MRP recognised that MRP approach is much better suited to final products than components. However, because components are used to produce final products, demand of components is a function of demand for final products and is therefore known for any given final assembly schedule. Any demand that originate outside the system was called independent demand. Dependent demand is demand for components that make up independent demand of products. By working backward from a production schedule of an independent demand item MRP derive schedules for dependent demand components. MRP is therefore called a push system since it computes schedules of what should be started (or pushed) into the line based on demand. This is contrast to pull system, such as Toyota’s kanban system, that authorises production as inventory is consumed.
MRP works with both finished products or end item (ei) and their constituent parts called lower-lever items (li). The relationship between items is described by the bill of material (BOM), describing the structure of product (fig. XXX)
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C, 2 items are needed for A |
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E, 4 items are needed for B
Fig XXX Bill of Material (example)
The basic MRP procedures are:
1. Netting: Determine net requirements by subtracting on-hand inventory and any scheduled receipts from the gross requirements. The gross requirements for level-zero items come from the MPC, while those for lower-level items are the result of previous MRP operations.
2. Lot-sizing: Divide the netted demand into appropriate lot sizes to form jobs.
3. Time phasing: Offset the due dates of the jobs with lead-times to determine start times.
4. BOM explosion: Use the start times, the lot sizes, and the BOM to generate gross requirements of any required components at the next level(s).
5. Iterate: Repeat these steps until all levels are processed.
MRP processes all parts for one level before beginning the next level.
We illustrate some procedures with a simple example.
Suppose the demand for part A is given by the gross requirements from the following master production schedule:
Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |
Suppose that there are no scheduled receipts and there are 30 units on hand in inventory. We assume that lot size for part A is 75 units and the lead-time is one week. The MRP processing goes as follows.
Netting: the units on hand will cover all the demand in week 1 with 15 units left over. The remaining 15 leave 5 units of the demand of 20 in week 2 uncovered. Thus, net requirements are:
Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |
Projected on-hand: 30 | 15 | -5 | - | - | - | - | - | - |
Net requirements | 0 | 5 | 50 | 10 | 30 | 30 | 30 | 30 |
Lot-sizing: The first uncovered demand is in week 2. Therefore, the first planned order receipt will be in week 2 for 75 units (the lot size). Since only 5 units are needed in week 2, 70 units are carried over to week 3, which has a demand of 50. This leaves 20 for week 4., which has a demand of 10. After covering week 4, the remainder is insufficient to cover demand of 30 units in week 5. Thus, we need another lot of 75 to arrive at the beginning of week 5, etc.
Time Phasing: To determine when to release the jobs (if made in-house) or purchase orders (if bought from someone else) we simply subtract the lead-time from the time of the planned order receipts to obtain the planned order releases. The results using planned lead-time of one week is shown below.
Part A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Gross requirements | 15 | 20 | 50 | 10 | 30 | 30 | 30 | 30 |
Projected on-hand: 30 | 15 | -5 | - | - | - | - | - | - |
Net requirements | 0 | 5 | 50 | 10 | 30 | 30 | 30 | 30 |
Planned order receipts | 75 | 75 | 75 | |||||
Planned order releases | 75 | 75 | 75 |
BOM Explosion: Once we have determined start times and quantities for part A, it is a simple matter to generate demand requirements for all of its components.
The basic inputs to MRP are a forecast of demand for end items, the associated bill of material, and current inventory status, plus data needed to specify production policies. These data come from three sources :
1. The item master file,
2. The master production schedule (MPC),
3. The inventory status file.
The output of an MRP system includes planned order releases, change notices, and exception reports. A planned order release contains at least three pieces of information: the component number, the number of units required, and the due dates for a job. Change notices indicate modifications of existing jobs, such as changes in due dates or priorities.
Exception reports, as in any large management information system, are used to notify the users that there are discrepancies between what is expected and what will transpire.
Despite its success the MRP process has significant restrictions in its use, particularly with respect to its use as a suitable planning system within dynamic supply chains, since it requires the following assumptions:
a) all customers, products, and materials are assumed of equal importance and hence MRP cannot deal with the complexity of component or supplier substitutions,
b) lead times are assumed fixed and known,
c) resource capacity is assumed to be available,
d) requirements calculation logic is a top-down, one-pass, sequential process that may optimise the requirements of individual components but does not necessarily optimise on a global bill-of-material basis,
e) broad, simultaneous data sharing is not allowed hence the data sharing capabilities are not available for co-ordinating activities across multiple sites of multiple resource entities,
f) requirements processing can typically takes hours to complete leading to many companies performing MRP processing only at night or at weekends, there is no opportunity to regenerate the plan during the normal workday to assess the impact of changes and MRP provides no simulation or decision support capability.
g) may produce inaccurate views of the true costs associated with activities in the supply chain.