PRODUCTION &
OPERATIONS
MANAGEMENT
ASSIGNMENT # 02
Name: Zeeshan Khalid
ROLL NO: CA 554796
SEMESTER : 02
TEACHER: MS. SIDRA SWATI
ALLAMA IQBAL OPEN UNIVERSITY
ISLAMABAD
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Table of Contents
PLANNING FOR MATERIALS NEEDS: .................................................................................... 3
Item: ............................................................................................................................................ 4
Low Level Code:......................................................................................................................... 4
Lot Size: ...................................................................................................................................... 4
Lead Time: .................................................................................................................................. 5
Past Due: ..................................................................................................................................... 5
Gross Requirements: ................................................................................................................... 5
Schedule Receipts: ...................................................................................................................... 5
Projected on Hand: ...................................................................................................................... 5
Net Requirements: ...................................................................................................................... 5
Planned Order Receipts: ............................................................................................................. 5
Planned Order Releases: ............................................................................................................. 5
Cumulative Lead Time: .............................................................................................................. 6
Product Structure Tree: ............................................................................................................... 6
Net Change System: .................................................................................................................... 6
Master Production Schedule: ...................................................................................................... 6
Lumpiness: .................................................................................................................................. 7
Time Fence: ................................................................................................................................ 7
BENEFIT OF MATERIAL REQUIRMENT PLANNING:....................................................... 7
MATERIAL REQUIRMENTS PLANNING STEPS AND PROCESSES: ............................... 7
Identifying the Quantity Requirements:...................................................................................... 8
Running the MRP Calculations: ................................................................................................. 8
Complete the Orders: .................................................................................................................. 8
Customer Orders: ........................................................................................................................ 8
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Forecast Demand: ....................................................................................................................... 8
Master Production Schedule (MPS): .......................................................................................... 9
Bill of Materials: ......................................................................................................................... 9
Inventory Records: ...................................................................................................................... 9
Purchase Orders: ......................................................................................................................... 9
Material Plan: .............................................................................................................................. 9
Work Orders: .............................................................................................................................. 9
Reports: ....................................................................................................................................... 9
Benefits of MRP: ...................................................................................................................... 10
Disadvantages of MRP: ............................................................................................................ 10
Problems Using Material Requirements Planning: ................................................................... 11
History of Material Requirements Planning: ............................................................................ 12
Will Material Requirement Planning Work For You ? ............................................................. 14
Connection Between Manufacturing and Distribution: ............................................................ 14
Is MRP is Beneficial? ............................................................................................................... 15
Realistic Expectations: .............................................................................................................. 16
Conclusion & Recommendation: .............................................................................................. 17
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PLANNING FOR MATERIALS NEEDS:
Material requirements planning (MRP) is an inventory, manufacturing, and scheduling planning
and control system. MRP transforms the master production plan into a comprehensive schedule so
that raw materials and components can be purchased. This method is a push form of inventory
management, meaning that companies use forecasting to assess consumer demand for goods. It is
mainly used in the manufacturing and fabrication industries. The manufacturing or fabrication
company will predict how much and what kinds of goods they will buy, as well as how much
material they will need to make them. The goods are then pushed to the customers. In comparison,
in a pull system, the consumer places the order first. The biggest drawback of a push method is
that it is vulnerable to fluctuations in revenue. In this case, projections become unreliable, resulting
in either a shortage of inventory or a surplus of inventory that needs storage in the manufacturing
industry.
Independent and dependent demand inventory is classified into two groups. Demand for finished
goods, such as cell phones or vehicles, is independent, while demand for components, parts, or
incomplete assemblies (also known as sub-assemblies), such as phone screens or vehicle tyres, is
dependent. Quantities for the dependent demand are determined by calculating quantities for the
independent demand.
In this point there are three questions raised when planning

What components do we need?

How many of each component do we need?

When do we need the components?
MRP differs from consumption-based planning in determining how much material your product
requires (CBP). MRP logic calculates the material required based on the dependencies of other
materials based on information received directly from customers or from the sales forecast. CBP
only uses historical consumption data to calculate material requirements. CBP does not consider
the interdependence of different materials because it assumes that future consumption will follow
the same pattern as historical consumption.
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MRP coordinates the flow of materials, components, and parts in a phased order system while
keeping the production schedule in mind. It also combines and monitors hundreds of variables,
such as:

Purchase Orders

Sales Orders

Shortage of Materials

Expedited Orders

Due Dates

Forecasts

Marketplace demand

Material

Inventory

Data

Bill of Material
MRP has a few goals in common with all businesses. These include ensuring that the inventory
level is kept to a minimum while still being sufficient to meet the needs of the customer, and that
all activities, including delivery, purchasing, and manufacturing, are planned.
There are some terms that will appear repeatedly in MRP. Some are general MRP terms, while
others are specific to MRP software. These are the terms in question:
Item:
An item in MRP is the name or code number assigned to the event you're planning.
Low Level Code:
This is the lowest level code of an item in the bill of materials and indicates the order in which
items are processed by an MRP. You use low-level code because an MRP system recognises and
connects the level at which an item appears in the product chain, and it uses this information to
plan the appropriate time to meet all of the system demands.
Lot Size:
This is the number of units you order during the manufacturing process.
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Lead Time:
This is the amount of time required to assemble or manufacture an item from start to finish.
Ordering lead time and manufacturing lead time are the two types of lead time. The ordering lead
time is the amount of time it takes from the start of the purchase to the receipt of the purchase.
Manufacturing lead time is the amount of time it takes a company to completely manufacture a
product from beginning to end.
Past Due:
This is the time when you consider orders that are running late.
Gross Requirements:
This MRP calculation is generated through forecast scheduling, which takes into account the
number of produced units, the amount of required material for each produced unit, the current
stock, and the ordered stock/stock in transit. This is the total demand for a product during a given
time period.
Schedule Receipts:
There are unfilled orders for goods that the company already owns but has yet to deliver.
Projected on Hand:
This is the estimated amount of inventory you'll have after meeting the gross criteria. To arrive at
this amount, add the POH from the previous time span to the scheduled and expected order
receipts, then deduct the gross requirements. (Previous POH + SR + POR – GR = Current POH)
Net Requirements:
This MRP estimate is generated using gross standards, on-hand inventory, and other quantities in
master scheduling. This is the actual quantity that must be extracted in a given time frame.
Planned Order Receipts:
The number of orders that are supposed to be issued during a given period of time. This order
planning prevents inventory from dropping below the required level.
Planned Order Releases:
This is the total amount of time you want to order. The lead time has been deducted from the POR.
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Cumulative Lead Time:
This is the longest period of time required to manufacture the product. You will figure it out by
examining each BOM and determining which one takes the longest.
Product Structure Tree:
This is a visual representation of the bill of materials, which shows how much of each component
and sub-part you'll need to make the product.
Net Change System:
There are devices that only detect differences between the new and old plans.
Master Production Schedule:
The MRP method is guided by the timetable of finished goods. The MPS values reflect the amount
of material you'll need to reach the prediction.
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Lumpiness:
When a substance or material that is low or at zero unexpectedly spikes, this is called a spike. The
demand for service parts is an example of lumpy or inconsistent demand. Since service parts are
only needed when an appliance fails, forecasting the need for them can be difficult because demand
is not constant.
Time Fence:
Time fences define the boundaries between MRP planning periods. They allow for changes to
programming, such as rules and restrictions.
BENEFIT OF MATERIAL REQUIRMENT PLANNING:
MRP concepts can be applied in a variety of different production environments. They can also be
used for service providers like job shops. Production environments include situations in which
products are complex, products are only assembled on demand, or demand items are discrete and
dependent. In these cases, MRP can reduce stored inventory, component shortages, overall
manufacturing costs, and thus purchase costs. This more accurate scheduling boosts your
company's productivity by reducing the required lead time, allowing you to provide higher-quality
production and service to your customers. Overall, your business is more competitive in the
market.
However, these benefits are accompanied by a few drawbacks. First and foremost, MRP is only
successful if the accounting is correct. You must keep accurate records of inventory and BOM
changes. Incorrect input leads to incorrect output. Another disadvantage of MRP is that it can be
expensive. When transitioning to a new system, it can be difficult and costly if input is not kept up
to date.
MATERIAL REQUIRMENTS PLANNING STEPS AND PROCESSES:
MRP functions because it is a well-organized set of processes and calculations. An MRP system
has the potential to completely transform a company's operational procedures. The MRP process
involves many people in an organisation, including sales, production, purchasing, receiving,
stockroom, and shipping personnel.
MRP consists of three basic steps:
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Identifying the Quantity Requirements:
Determine the quantity that is currently on hand, in an open purchase order, planned for
manufacturing, already committed to existing orders, and forecasted. These requirements are
unique to each company and each location, and they change with the seasons.
Running the MRP Calculations:
Make recommendations for materials that you believe should be critical, expedited, or delayed.
Complete the Orders:
Define the materials needed for manufacturing orders, purchase orders, and other reporting needs.
Customer Orders:
This refers to the specific information you receive from customers, which may include one-time
orders as well as regular ordering patterns.
Forecast Demand:
This is a market prediction of how much likely demand there will be for a product or service. It is
based on historical accounting as well as current trend analysis.
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Master Production Schedule (MPS):
Forecast demand and customer orders are both factored into the master production schedule. The
MPS is a production, staffing, or inventory plan that a company creates. It is the production future
plan that includes the quantities required to produce the products within a given time frame.
Inventory costs, production costs, inventory information, supply, lot size, lead time, and
development capacity are also included.
Bill of Materials:
This file, also known as a product structure file, contains the details and quantities of the raw
materials, assemblies, and components that comprise each end product.
Inventory Records:
These are the raw materials and finished goods that you either have on hand or have previously
ordered.
After MRP receives the input, it generates the outcomes. There are four main outcomes.
Purchase Orders:
This is the recommended purchasing schedule, which includes the order you place with suppliers
to have the materials shipped to you. To meet the MPS, the PO includes a schedule with quantities
and start and finish dates.
Material Plan:
This section lists the raw materials, assembly items, and component requirements for the finished
products, along with quantities and due dates. To set time fences and firm orders, we recommend
that you use attribute settings.
Work Orders:
This section describes the work that goes into creating the final product, including which
departments are in charge of which parts, what materials are required, and when the work will
begin and end.
Reports:
MRP produces both primary and secondary reports. All three of the above are primary reports, as
are those dealing with production and inventory planning and control. Secondary reports are those
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that go into greater detail about things like performance control, exception data (such as errors or
late orders), deviations, and predictors of future inventories and contracts.
Benefits of MRP:
The primary goal of MRP is to ensure that materials and components are available when needed
in the manufacturing process and that manufacturing occurs on time. MRP also has the following
advantages:

Decreased customer lead times in order to improve customer satisfaction; decreased
inventory costs

Effective inventory management and optimization – By acquiring or manufacturing the
optimal amount and type of inventory, businesses can reduce the risk of stock-outs and
their negative impact on customer satisfaction, sales, and revenue without spending more
than necessary on inventory.

Increased manufacturing efficiency through accurate production planning and scheduling
to optimise the use of labour and equipment

greater labour productivity; and

more affordable product pricing
Disadvantages of MRP:

Increased inventory costs: While MRP is intended to ensure adequate inventory levels at
the appropriate times, businesses may be tempted to hold more inventory than is necessary,
driving up inventory costs. An MRP system anticipates shortages earlier, which can lead
to overestimation of inventory lot sizes and lead times, particularly in the early days of
deployment before users gain the experience to know the actual amounts required.

Lack of flexibility: MRP is also somewhat rigid and simplistic in how it accounts for lead
times or details that affect the master production schedule, such as factory worker
efficiency or issues that can cause material delivery to be delayed.

Data integrity requirements: MRP relies heavily on accurate information about key inputs,
particularly demand, inventory, and production. If one or two inputs are incorrect, errors
can be magnified later in the process. Thus, data integrity and data management are critical
for the effective use of MRP systems.
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To compensate for MRP's shortcomings, many manufacturers uses advanced planning and
scheduling (APS) software, which uses sophisticated math and logic to provide more accurate and
realistic lead time estimates. Unlike most MRP systems, APS software takes into account
production capacity, which can have a significant impact on material availability.
Problems Using Material Requirements Planning:
Although an MRP system is far superior to putting together a system of spreadsheets and hand
calculations, issues do arise. The most serious issue is data integrity. Data that is either out of date
or contains errors produces inaccurate results, which can end up costing your company a lot of
money. Inventory and BOM data should be thoroughly screened. Errors frequently occur during
cycle-count adjustments, input and shipping, and scrap, damage, waste, and production reporting.
These types of errors can be reduced by using barcode scanning and pull systems.
Furthermore, when companies with facilities in different countries do not set up by individual
location, MRP systems can be rife with errors. The MRP system, for example, may indicate that
there is plenty of raw material available for production when, in fact, that raw material is on the
other side of the world. Staffing is also not always taken into account in MRP. The MRP causes a
capacity problem in these cases.
Furthermore, lead times can deviate from MRP. The required lead time varies depending on the
product. MRP assumes that the lead time for each product is always the same, regardless of
changes in supply, required quantities, or possible concurrent production of other products.
It may take some concentrated effort to resolve your data-integrity issues. Best practises for
ensuring high-quality data before beginning your MRP process include:

To replace stock and enter products into inventory, use barcode scanning or a pull system.

ensuring that the container labels are printed by shipping

Requiring advance shipping notifications (ASN) from your suppliers, which will be fed
into a labelling system. Match labels with internal company numbers as product arrives to
detect shortages and over-shipments.

Scrap is recorded daily.

Identifying and resolving the causes of cycle counts that incorrectly change your inventory

Confirming the material bill at the production site
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Although an MRP system is far superior to putting together a system of spreadsheets and hand
calculations, issues do arise. The most serious issue is data integrity. Data that is either out of date
or contains errors produces inaccurate results, which can end up costing your company a lot of
money. Inventory and BOM data should be thoroughly screened. Errors frequently occur during
cycle-count adjustments, input and shipping, and scrap, damage, waste, and production reporting.
These types of errors can be reduced by using barcode scanning and pull systems.
When companies with facilities in different countries do not set up MRP systems by individual
location, MRP systems can be rife with errors. The MRP system, for example, may indicate that
there is plenty of raw material available for production when, in fact, that raw material is on the
other side of the world. Staffing is also not always taken into account in MRP. The MRP causes a
capacity problem in these cases.
Furthermore, lead times can deviate from MRP. The required lead time varies depending on the
product. MRP assumes that the lead time for each product is always the same, regardless of
changes in supply, required quantities, or possible concurrent production of other products.
It may take some concentrated effort to resolve your data-integrity issues. Best practises for
ensuring high-quality data before beginning your MRP process include:

To replace stock and enter products into inventory, use barcode scanning or a pull system.

ensuring that the container labels are printed by shipping

Requiring advance shipping notifications (ASN) from your suppliers, which will be fed
into a labelling system. Match labels with internal company numbers as product arrives to
detect shortages and over-shipments.

Scrap is recorded daily.

Identifying and resolving the causes of cycle counts that incorrectly change your inventory

Confirming the material bill at the production site
History of Material Requirements Planning:
Material and planning control systems began using mathematics to calculate manufacturing lot
sizes in the early twentieth century. Ford W. Harris introduced the economic order quantity (EOQ)
model in 1913, and it is still studied for inventory management today.
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MRP was created by Joseph Orlicky in 1964 while working for IBM to perform computerised
supply planning. Dr. Orlicky was on a mission to teach senior executive clients how to manage
their inventory and control processes using computer technology. Dr. Orlicky worked at IBM with
Oliver Wight, who went on to co-author a book with George Plossl called Production and
Inventory Control: Principles and Techniques in 1967.
The book, which has long been regarded as a bible of production and inventory control practises,
had an almost immediate impact. MRP was immediately implemented by Black & Decker. The
three professionals, Orlicky, Wight, and Plossl, started a movement that resulted in nearly 700
companies implementing MRP by the time Dr. Orlicky's book, Material Requirements Planning,
was published in 1975.
By 1981, approximately 8,000 businesses had implemented MRP. The next generation of MRP
was referred to as closed-loop MRP because it included a feedback feature that allowed
synchronisation and adjustment of the master production schedule, effectively closing the loop.
APICS, formerly the American Production and Inventory Control Society, undertook a massive
campaign called the "MRP Crusade" to tout the benefits of the MRP system and make it the
standard for manufacturing planning in America, led by the three professionals. APICS is still
active today as a professional association for supply-chain operations, logistics, and management
research and publications.
Oliver Wight advanced MRP by developing manufacturing resource planning (MRP II), also
known as material planning, in 1983. MRP II, regarded as a significant innovation, includes
additional data, such as employee and financial information.
The most recent development for MRP occurred in 2011, with the publication of a new book by
Joseph Orlicky's original publishing company, McGraw Hill. This third edition of Orlicky's
Material Requirements Planning is an update to Orlicky's work. Demand-driven MRP (DDMRP)
was introduced in this edition, with five components: strategic inventory positioning, buffer
profiles, level, dynamic adjustments, demand-driven planning, and highly visible.
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Will Material Requirement Planning Work For You ?
While MRP has universally applicable elements, our experience has shown that its ultimate
success is intimately related to some critical aspects of your overall manufacturing operations,
which must be carefully analysed. It is not a question of whether or not its basic logic applies—it
does in most cases. The question is how to best incorporate this logic into your own manufacturing
system, given (1) its key control variables and (2) its primary production/inventory tasks. Others
have discussed the significance of developing a well-thought-out manufacturing policy, and this
question is about exactly that. The answer sets the stage for an examination of what MRP can and
cannot do for you.
There are three general examples to illustrate the analysis:

Company A is a straightforward assembly operation. Almost all parts and subassemblies
are purchased from outside sources; a few models have long production runs; and finished
goods inventory is kept in a large distribution system.

Company B operates as a general machine shop. Products are made to order and to
customer specifications; manufacturing flows are complex; and there are large in-process
inventories.

Company C is a manufacturing/assembly business. The majority of the parts are produced
in a general machine shop and assembled in small quantities per customer order and
specification.
Connection Between Manufacturing and Distribution:
MRP appears to be a natural fit for Company A, where a few products are assembled to stock in
long production runs. The assembly or master schedule, in conjunction with a bill of materials and
inventory file, can be used to expand requirements and offset lead times for purchased parts and
subassemblies.
Consider the organization's key production/inventory control tasks. Factory cycle times and inprocess inventories are almost certainly non-existent. Although important, in-process inventory
control is not the primary task in this case. The distribution system is more likely to have a
concentration of inventories. As a result, Company A's primary production/inventory tasks are to
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plan intermediate-term (three to twelve months) production while controlling distribution system
inventories and purchase orders.
Its key control variables are the avoidance of stock - outs at distribution centres, the smoothness
of production rates, and the maintenance of a supply of purchased components for assembly lines
to avoid shutdowns.
MRP must interface well with distribution if it is to be used effectively in this type of
manufacturing environment. The master schedule is critical because it connects the current stock
position at distribution centres to the assembly schedules. Furthermore, the master schedule in this
case includes an intermediate-term production plan, which allows the manager to smooth out peaks
and valleys in production levels.
An MRP system can provide purchasing with the information it needs to control its acquisitions
by exploding as well as time-phasing component requirements from this master schedule. MRP
can then maintain priorities as schedules shift, stockouts loom, and deliveries fall behind.
However, the emphasis here is on distribution, production smoothing, and purchasing as the
system's key tasks and control variables. This focus, of course, necessitates that the organisation
have a well-developed and rapid distribution and purchasing communications system.
Is MRP is Beneficial?
Unfortunately, calculating the value of MRP is difficult because the answer is dependent on your
starting point. For one thing, the system's benefits are dependent on how well your current
production control system works. The costs are determined by the stage of development of your
current manufacturing control system, as well as the skills and attitudes of your organization's
personnel.
For example, a $5 million fabrication/assembly company implemented a simple MRP system in
six months using a small computer, the factory superintendent's part-time efforts, and one (the
only) systems analyst in data processing. After five years of stop-and-start evolutionary effort on
MRP and associated systems, a new, larger computer, and a great deal of data processing support,
another company with sales in excess of $20 million and that both fabricates and assembles
similarly complex products is only now reaping the benefits of an integrated MRP-based
production control system.
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Is it the case that smaller businesses or manufacturing departments can use MRP more effectively
and efficiently than larger ones? We doubt it. The anomaly is more likely caused by differences in
skill levels, the adequacy of related systems, and the organizational support available in the two
companies.
The first company had two skilled and dedicated people to design and implement the system; the
second did not and had to hire them from outside and develop them internally. The first had a
reasonably good, albeit informal, shop floor control and reporting system; the second had to create
one from scratch. The first company benefited from good relationships among foremen, workers,
engineers, and marketing personnel; the second did not consult these people in the original design
of the system, ran into organizational issues when implementing it, and had to restart with an
extensive training and selling program.
The first company had accurate material bills and the organizational commitment and mechanisms
to keep them up to date; the second had to create the bills and persuade people that accurate record
keeping was an important part of their job.
Realistic Expectations:
Clearly, these businesses began with disparate skill sets, support systems, and levels of
organizational commitment. Similarly, what was essentially a routine job for one was a significant
long-term effort for the other. Their experiences demonstrate the importance of starting with
realistic expectations about what it will take and how long it will take to implement such a system.
What kind of outcomes can you anticipate? On the one hand, if your current production control
system is causing extremely high inventories and/or poor delivery performance, an MRP
installation is likely to be very rewarding. For example, one company reported a 12% reduction in
finished inventories, a 30% reduction in work-in-process inventory, and a 35% increase in on-time
deliveries. However, this company had some serious issues to begin with.
On the other hand, if your performance is good according to industry and internal standards, the
results of an MRP system may not be as dramatic. However, a lack of dramatic results can be
deceiving. For example, one large corporation implemented MRP during a period of explosive
sales growth, which put strain on its capacity. Despite the fact that its inventories did not decrease
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(in fact, they increased), its turnover remained roughly the same. This company's old production
control system would not have been able to withstand these strains.
The MRP concept has sparked interest, indicating the potential of this type of control system. The
realization of its potential for your organization, on the other hand, is dependent on an examination
of how it must be focused. Furthermore, because implementing such a system can present
challenges that belie the simplicity of its underlying logic, management must develop realistic
expectations about its associated costs and benefits.
Conclusion & Recommendation:
An MRP system enables a company to achieve numerous benefits that not only reduce costs but
also improve the efficiency of your production system. It saves money on carrying costs, bulk
purchases, and material tracking. On the efficiency front, the system assists you in calculating
future capacity needs, planning production times, determining the required safety stock, and
determining the most convenient lot sizes in order to achieve both cost effectiveness and
efficiency.
This system also allows you to evaluate the issues that your organization is having with inventory
control and material planning in order to ensure that you adjust all of the necessary areas to provide
a smooth and maximally efficient production process. When it comes to major incidents that may
interrupt or halt the production process, you are given advance warning or prediction so that you
can find an alternative solution. The proper use of an MRP system necessitates the keeping of
accurate records to ensure that you have accurate figures to input into the system, which is a
requirement.