MANUFACTURING RESOURCE PLANNING (MRP II)

MANUFACTURING RESOURCE PLANNING(MRP II)NECESSITY OF MATERIALS PLANNINGNecessity of Materials Planning Material Planning is necessaryTo avoid over ordering on under-ordering of materials.To reduce unwanted expenses due to last minute ordering.To reduce capital locked up in excess.INDEPENDENT AND DEPENDENT DEMANDIndependent Demand:Demand for final products. Dependent Demand:Demand fort items that are sub assemblies or component parts to be used in production of finished goods.WHAT IS MATERIAL REQUIREMENTS PLANNING (MRP)? It is a production planning process that starts from the demand for finished products and plans the production step by step of subassemblies and parts. Materials Requirements Planning (MRP) is a set of techniques that takes the Master Production Schedule and other information from inventory records and product structure records as inputs to determine the requirements and schedule of timing for each item.WHERE IS MRP APPLICABLE? This inventory management system is appropriate for items that have a dependent demand . MRP is applicable for industries that offer a variety of finished products where the customer is allowed to choose among many different options.MRP is most appropriate when the manufacturing environment is complex and uncertain.Purpose of MRP MRP INPUTSMaster Production Schedule (MPS)Bills of materials (BOM) Inventory status fileLead timeMRP OUTPUTSPrimary reports1. Work orders2. Purchase orders3. Action notices or rescheduling noticesSecondary reports1. Exception reports2. Planning reports3. Performance Control reportsInventory transactionMRP INPUT - BILLS OF MATERIALS (BOM)A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product .BOM Shows way a finished product or parent item is put together from individual components.Parent item shown at highest level or level zero , Parts that go into parent item are called level 1 components and so on.Production planners explode BOM to determine the number, due dates, and order dates of subcomponents.MRP INPUT - MASTER PRODUCTION SCHEDULE (MPS)Based on actual customer orders and predicted demand.Indicates when each ordered item will be produced in coming weeks, and in how much quantity. It is a plan specifying timing and quantity of production for each end item.MPS inputs come from sales and marketing . MPS covers about 1-3 months into the future.MRP INPUT - INVENTORY STATUS FILEDetailed information regarding the quantity of each item, available in hand, on order to be released, for use in various time periods.MRP system using inventory master file is used to determine the quantity of material available for use in a given period.If sufficient items not available , the system includes the item on the planned order release report .Also known as Inventory Master FileMRP OUTPUTS PRIMARY REPORTSPrimary reports1. Work orders / Planned orders - schedule indicating the amount and timing of future orders.2. Order Release - Authorization for the execution of planned orders.3. Action Notices or Rescheduling Notices - which orders are to be released, revised and canceled during the current time period.MRP OUTPUTS- SECONDARY REPORTSSecondary Reports1. Performance control Reports evaluate system operations . They aid in measuring deviations from plans, and also provide information to assess cost performance. 2. Planning Reports are useful to forecast future inventory requirements.3. Exception Reports these help to find the major discrepancies such as late and overdue orders, excessive scrap rates, reporting errors, etc.MRP PROCESSExploding and OffsettingGross and Net Requirements Releasing Orders Low level Coding and NettingMRP PROCESS 1 - EXPLODING AND OFFSETTINGLead time it is the time needed to perform the process . It includes order preparation, queuing, processing moving receiving and inspecting time as well as any expected delays. Exploding the requirements it is the process of multiplying the requirements by usage quantity of each item and recording the appropriate requirements throughout the product tree.Offsetting it is a process of placing the exploded requirements in their proper periods based on lead time.MRP PROCESS 2 - GROSS AND NET REQUIREMENTSGross Requirement - Total expected demand of the product. Net Requirements - Actual amount needed in each time period. Net Requirements = Gross Requirement available inventory Planned on hand - Expected inventory on hand at the beginning of each time period. Planned-order receipts - Quantity expected to received at the beginning of the period Planned-order releases - Planned amount to order in each time periodMRP PROCESS 3 - RELEASING ORDERSReleasing an order means authorization is given to buy the necessary material or to manufacturing of required component. Scheduled Receipts are orders placed on manufacturing or on a vendor and represent a commitment to make or buy. Now, considering Scheduled Receipts,Net Requirement = Gross Requirement Scheduled Receipts available inventoryMRP PROCESS 4 - LOW LEVEL CODING AND NETTINGNetting is a process in which any stock on hand is subtracted from the gross requirement determined through explosion, giving the quantity of each item needed to manufacture the required finished products.Low Level Code is the lowest level on which a part resides in all bills of material.Low level codes are determined by starting at lowest level of bill of material and working up, recording the level against the part. If part exists on higher level, its existence on the lower level is already recorded.Time buckets - The column in an inventory record that represents a unit of time. It may be in days or weeks. Action bucket - The current time period. Action notices - Output from the MRP system identifying the need for an action, to avoid future problem. Planning Horizon is the total number of periods in a record.BENEFITS OF MRPKeep inventory levels to a cost-effective minimum.Keeps track of inventory that is used.Tracks the amount of material that is required . Set safety stock levels for emergencies.Determine the best lot sizes to fulfill orders. Set up production times among the separate manufacturing stages. Plan for future needs of rawDRAWBACKS OF MRPInaccurate information can result in mis-planning , overstock, under-stock, or lack of appropriate resources.The inaccurate master schedule will provide wrong lengths of time for production . Hence affecting planning.MRP systems can be costly and time-consuming to set up.EVOLUTION OF MRP INTO MRP IIIn sn chary page 23.722MRP II DEFINEDManufacturing resource planning (MRPII) is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units and financial planning .This isnot exclusively a software function, but a combination of people skills, dedication to data base accuracy, and computer resources. It is a total company management concept forusing human resources which is used more productively.

MODULES IN MRP 2Business PlanningPurchasingForecastingInventory ControlOrder Entry And ManagementShop Floor ControlFaster Production SchedulingDistribution Requirement SchedulingService Requirement PlanningCapacity Requirement PlanningAccounting499 mahadevan25BENEFITS OF MRP 2More efficient use of resourcesReduced inventoriesLess idle timeFewer bottlenecksBetter priority planningQuicker production startsSchedule flexibility

Improved customer serviceMeet delivery datesImproved qualityLower pricepossibilityImproved employee moralBetter management information

DISADVANTAGES OF MRP IIError Due To Poor InformationUse of averagesMRP II implementation requires information to be accurate. If poor quantity information is used in either the inventory area or the bill of material module, errors in automated planning processes will result. The planning modules use averages for length of time to purchase or manufacture (lead times) and for quantities usually purchased on a purchase order or manufactured on a work order (lot sizes). If there is variability in the actual lot sizes purchased or produced and the lead times then planning software will not produce plans that match what actually happens. Poor information and lack of understanding of the impact of average lot sizes and lead times can cause implementation failure and costly

MRP II implementation requires information to be accurate. If poor quantity information is used in either the inventory area or the bill of material module, errors in automated planning processes will result. The planning modules use averages for length of time to purchase or manufacture (lead times) and for quantities usually purchased on a purchase order or manufactured on a work order (lot sizes). If there is variability in the actual lot sizes purchased or produced and the lead times then planning software will not produce plans that match what actually happens. Poor information and lack of understanding of the impact of average lot sizes and lead times can cause implementation failure and costly

MRP II implementation requires information to be accurate. If poor quantity information is used in either the inventory area or the bill of material module, errors in automated planning processes will result. The planning modules use averages for length of time to purchase or manufacture (lead times) and for quantities usually purchased on a purchase order or manufactured on a work order (lot sizes). If there is variability in the actual lot sizes purchased or produced and the lead times then planning software will not produce plans that match what actually happens. Poor information and lack of understanding of the impact of average lot sizes and lead times can cause implementation failure and costly

MRP II implementation requires information to be accurate. If poor quantity information is used in either the inventory area or the bill of material module, errors in automated planning processes will result. The planning modules use averages for length of time to purchase or manufacture (lead times) and for quantities usually purchased on a purchase order or manufactured on a work order (lot sizes). If there is variability in the actual lot sizes purchased or produced and the lead times then planning software will not produce plans that match what actually happens. Poor information and lack of understanding of the impact of average lot sizes and lead times can cause implementation failure and costlyMRP II implementation requires information to be accurate. If poor quantity information is used in either the inventory area or the bill of material module, errors in automated planning processes will result. The planning modules use averages for length of time to purchase or manufacture (lead times) and for quantities usually purchased on a purchase order or manufactured on a work order (lot sizes). If there is variability in the actual lot sizes purchased or produced and the lead times then planning software will not produce plans that match what actually happens. Poor information and lack of understanding of the impact of average lot sizes and lead times can cause implementation failure and costly

28Manufacturing resource planning(MRP II) is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP.

Key functions and features:

> MRP II is not a proprietary software system and can thus take many forms. It is almost impossible to visualize an MRP II system that does not use a computer, but an MRP II system can be based on either purchasedlicensed or in-house software.Almost every MRP II system is modular in construction.

Characteristic basic modules in an MRP II system are: - Master Production Schedule(MPS) - Item master data (technical data) - Bill of Materials(BOM) (technical data) - Production resources data (manufacturing technical data) - Inventories and orders (inventory control)

Together with auxiliary systems such as:

- Business planning - Lot traceability - Contract management - Tool management - Engineering change control - Shop floor data collection - Sales analysis and forecasting- Configuration management - Finite capacity scheduling (FCS)

and related systems such as: -Accounts Payable(purchase ledger) - General Ledger - Accounts receivable(sales ledger) - Estimating - Sales order management - Project management - Distribution requirements planning (DRP) - Automatedwarehouse management - Technical records - Computer-aided design/computer-aided manufacturing (CAD/CAM)Benefits:

MRP II systems can provide: - Better control of inventories - Improved scheduling - Productive relationships with

For design / engineering: - Improved design control - Better quality and quality control - For financial and costing: - Reducedworking capitalfor inventory - Improved cash flow through quicker deliveries - Accurate inventory records

Industry specifics:

MRP II systems have been implemented in most manufacturing industries. pharmaceuticals or food

Other industries can afford to disregard facilities required by others Capacity planning is the key to success in this as in many industriesMRP II is less appropriate

MRP and MRP II: History and Evolution

Material requirements planning (MRP)

manufacturing resource planning (MRPII)

enterprise resource planning (ERP)

Both MRP and MRPII are still widely used.

original vision of integrated information systems

The vision for MRP and MRP II :Centralizeintegrate business information increase the efficiency of the production line overall.

In the 1980s:manufacturers developed systems production managers recognized that they would need to use computer and software technology

KEY ELEMENTS

Sales and Operations Planning (SO&P)Sales ForecastingMaster Production Schedule (MPS)Material Requirements Planning (MRP)Capacity Requirements Planning (CRP)KANBAN

It is a scheduling system that tells you what to produce, when to produce it, and how much to produce.MRP II vs KANBANComputerized systemMore concerned in projecting requirementPlanning and leveling capacity via computerComplex

Manual systemInvolve in very small lot sizes, short lead times, high-quality outputSimple

MRP and MRPII: General concepts

> Material requirements planning (MRP) and manufacturing resource planning (MRPII) are both incremental information integration business process strategies that are implemented using hardware and modular software applications linked to a central database that stores and delivers business data and information.

> MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human relations. The goal of MRPII is to provide consistent data to all players in the manufacturing process as the product moves through the production line.

> Paper-based information systems and non-integrated computer systems that provide paper or disk outputs result in many information errors, including missing data, redundant data, numerical errors that result from being incorrectly keyed into the system, incorrect calculations based on numerical errors, and bad decisions based on incorrect or old data. In addition, some data is unreliable in non-integrated systems because the same data is categorized differently in the individual databases used by different functional areas.

> MRPII systems begin with MRP, material requirements planning. MRP allows for the input of sales forecasts from sales and marketing. These forecasts determine the raw materials demand. MRP and MRPII systems draw on a master production schedule, the breakdown of specific plans for each product on a line. While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the development of a detailed production schedule that accounts for machine and labor capacity, scheduling the production runs according to the arrival of materials.

> An MRPII output is a final labor and machine schedule. Data about the cost of production, including machine time, labor time and materials used, as well as final production numbers, is provided from the MRPII system to accounting and finance (Monk and Wagner).

MARKET DEMAND PRODUCTION PLANManufacturing Finance MarketingRough Out Capacity PlanningProblems?Master Production Schedule MRPCapacity requirement planning Problems? Requirements Schedules