Material Requirement Planning (MRP I and MRP II)

MRP is a computer-based planning system that converts the master production schedule of end products into time-phased requirements of the sub-assemblies, components and raw materials. It answers: what to order, how much, and when. It is used for dependent demand items (items whose demand depends on the end product), unlike reorder-point systems for independent demand.

Inputs

 Master Production  Bill of Materials  Inventory records
   Schedule (MPS)        (BOM)         (on hand, on order)
        \                 |                  /
         +--------> MRP LOGIC <-------------+
                       |
   Planned order releases | Reschedule notices | Reports

1. Master production schedule (MPS): quantity and date of each end product.
2. Bill of materials (BOM): product structure showing parts per unit at each level.
3. Inventory status file: on-hand stock, scheduled receipts, lead times, lot-size rules and safety stock.

Working

Gross requirements are exploded level by level; net requirements are found as gross minus (on hand + scheduled receipts); orders are planned and offset backward by the lead time.

Outputs

• Planned order releases (what to order and when).
• Order rescheduling notices (move earlier or later).
• Cancellation notices and exception reports.
• Inventory and performance reports.

Benefits

• Lower inventory and work-in-process.
• Better delivery performance and customer service.
• Fewer stock-outs and rush orders.
• Better use of labour and machines; realistic schedules.
• Quick response to change in MPS.

Applications

Assembly industries with many components and long lead times: machinery, automobiles, electronics, aircraft, furniture.

Method

For each item: Net requirement = Gross requirement - (projected on hand + scheduled receipt). Planned order receipt = net requirement (lot-for-lot). The planned order release is the receipt moved earlier by the lead time. The releases of A give the gross requirement of B: $2 \times$ A releases.

Item A (LT = 1 week, on hand 20)

Week 4: 50 needed, 20 in stock, so 30 to be produced and released in week 3. Week 6: 80 needed, stock is zero, release in week 5.

Item B (LT = 2 weeks, on hand 40, receipt of 30 in week 2)

Gross requirement of B $= 2 \times 30 = 60$ in week 3 and $2 \times 80 = 160$ in week 5.

Week 3: available 70 against need 60, leaving 10. Week 5: need 160, stock 10, so net 150; the release is moved two weeks earlier to week 3.

Answer: Release 30 units of A in week 3 and 80 in week 5; release 150 units of B in week 3.

MRP II extends MRP into a company-wide system that plans all the resources of a manufacturing firm: materials, capacity, labour, machines and money. It links production planning with marketing and finance and uses a common database. It is called "closed loop" because feedback from shop floor and suppliers is used to revise plans.

Main modules

 Business plan -> Sales & operations plan
        |
   Master Production Schedule (MPS) -> Rough-cut capacity
        |
   MRP (material plan) -> Capacity requirements planning
        |
   Shop-floor control & purchasing
        |  (feedback to upper levels)

1. Business and sales/production planning: long-range plan in money and units.
2. Master production schedule and rough-cut capacity planning.
3. MRP: time-phased material plan.
4. Capacity requirements planning (CRP): checks that machines and labour can meet the MRP plan.
5. Shop-floor control and purchasing: dispatching, order release and supplier control.
6. Finance, costing and simulation: cost, budgets and "what-if" analysis.

MRP versus MRP II

The later extension is ERP, which covers the whole enterprise including HR and accounts.

The Japanese approach, developed by Taiichi Ohno at Toyota, is the Toyota Production System. Its aim is to produce only what is needed, when it is needed, in the quantity needed (Just-in-Time, JIT), with the elimination of waste (muda).

Main elements

• Pull system: production starts only when the next process asks for parts, whereas MRP "pushes" parts according to a forecast schedule.
• Small lots and short set-up times (SMED).
• Levelled production (heijunka) and uniform loading.
• Elimination of seven wastes: overproduction, waiting, transport, over-processing, inventory, motion, defects.
• Total quality control and jidoka (stop on defect), multi-skilled workers, supplier partnership, U-shaped cells.

Kanban (card) system

Kanban means signboard or card. Two kinds are used:

• Production kanban: authorises the process to produce a container of parts.
• Withdrawal (move) kanban: authorises the next process to take a container from the preceding store.

 Process A ---> [Store A] ---> Process B
   ^   production    |  withdrawal    |
   |   kanban        |  kanban        |
   +---<-------------+-----<----------+

Working:

1. Process B uses a container of parts; its withdrawal kanban goes to the store of A and a full container is taken.
2. The production kanban that was on that container is freed and returned to Process A.
3. Process A produces one container to replace it.

The number of kanbans is $N = \dfrac{D\,(T_w + T_p)(1+\alpha)}{C}$ (D demand rate, $T_w$ waiting, $T_p$ processing time, $C$ container size, $\alpha$ safety factor). Fewer cards means less inventory.

MRP is a computer-based push system that plans orders from the master schedule, BOM and inventory records. JIT is a pull philosophy aimed at zero inventory and continuous elimination of waste, in which parts are produced only when the next stage uses them.

Suitability

• MRP: complex products with many levels in the BOM, variable demand, job-shop or batch production (aircraft, machinery).
• JIT: repetitive, high-volume production with stable demand, short set-ups and reliable suppliers (automobile, electronics assembly).
• Combined: many firms use MRP for planning and JIT/kanban for shop-floor execution.