Materials Requirements Planning (MRP)

Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and derailleurs.

The first MRP systems of inventory management evolved in the 1940s and 1950s. They used mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components. Before long, MRP was expanded to include information feedback loops so that production personnel could change and update the inputs into the system as needed. The next generation of MRP, known as manufacturing resources planning or MRP II, also incorporated marketing, finance, accounting, engineering, and human resources aspects into the planning process. A related concept that expands on MRP is enterprise resources planning (ERP), which uses computer technology to link the various functional areas across an entire business enterprise.

MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. "MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, component parts, and raw materials needed to produce the finished items in the specified time frame," William J. Stevenson wrote in his book Production/Operations Management. "Thus, MRP is designed to answer three questions: what is needed? how much is needed? and when is it needed?"

MRP breaks down inventory requirements into planning periods so that production can be completed in a timely manner while inventory levels—and related carrying costs—are kept to a minimum. Implemented and used properly, it can help production managers plan for capacity needs and allocate production time. But MRP systems can be time consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Companies must maintain current and accurate bills of materials, part numbers, and inventory records if they are to realize the potential benefits of MRP.

MRP Inputs and Outputs
Inputs Outputs
Demand for all products. Planned orders: replenishment orders to be released at a future time
Lead times for all finished goods, components, parts and raw materials Order release notice: notices to release planned orders

Lot sizing policies for all parts Action notices: notices to expedite, de-expedite, or cancel orders, or to change order quantities or due dates
Opening inventory levels Priority reports: information regarding which orders should be given priority
Safety stock requirements Inventory status information
Any orders previously placed but which haven't arrived yet Performance reports such as inactive items, actual lead times, late orders, etc.

Master Production Schedule (MPS)

The Master Production Schedule (MPS) translates your business plan, including forecasted demand, into a production plan using planned orders in a true multi-level optional component scheduling environment. Using MPS helps you avoid shortages, costly expediting, last minute scheduling, and inefficient allocation of resources.
Working with MPS allows you to consolidate planned parts, produce master schedules and forecasts for any level of the Bill of Material (BOM) for any type of part. You can maintain and manipulate the Master Production Schedule forecasts using the Statistical Sales Forecasting module, and you can maintain separate forecasts for each customer.
The process starts at the top level with a Master Production Schedule (MPS). This is an combination of known demand, forecasts and product to be made for finished stock. The phasing of the demand may reflect the availability of the plant to respond. The remainder of the schedule is derived from the MPS. Two key considerations in setting up the MPS are the size of `time buckets' and the `planning horizons'. A `time bucket' is the unit of time on which the schedule is constructed and is typically daily or weekly. The `planning horizon' is how far to plan forward, and is determined by how far ahead demand is known and by the lead times through the operation.

There are three distinct steps in preparing an MPS:

 Exploding o Explosion uses the Bill of Materials (BOM). This lists how many, of what components, are needed for each item (part, sub assembly, final assembly, finished product) of manufacture. Thus a car requires five wheels including the spare. BOM's are characterised by the number of levels involved, following the structure of assemblies and sub assemblies. The first level is represented by the MPS and is 'exploded' down to final assembly. Thus a given number of finished products is exploded to see how many items are required at the final assembly stage.
 Netting o The next step is 'netting', 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.
 Offsetting o The final step is 'offsetting'. This determines when manufacturing should start so that the finished items are available when required. To do so a 'lead time' has to be assumed for the operation. This is the anticipated time for manufacturing.The whole process is repeated for the next level in the BOM and so on until the bottom is reached. These will give the requirements and timings to outside suppliers.

There are three major assumptions made when constructing an MPS:

1. The first, and possibly the most important, is that there is sufficient capacity available. For this reason MRP is sometimes called infinite capacity scheduling.
2. The second is that the lead times are known, or can be estimated, in advance.
3. The third is that the date the order is required can be used as the starting date from which to develop the schedule.

Just-In-Time (JIT) Production

Just-in-time (JIT) is defined in the APICS dictionary as “a philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity”. It also has been described as an approach with the objective of producing the right part in the right place at the right time (in other words, “just in time”). Waste results from any activity that adds cost without adding value, such as the unnecessary moving of materials, the accumulation of excess inventory, or the use of faulty production methods that create products requiring subsequent rework. JIT (also known as lean production or stockless production) should improve profits and return on investment by reducing inventory levels (increasing the inventory turnover rate), reducing variability, improving product quality, reducing production and delivery lead times, and reducing other costs (such as those associated with machine setup and equipment breakdown). In a JIT system, underutilized (excess) capacity is used instead of buffer inventories to hedge against problems that may arise.

JIT applies primarily to repetitive manufacturing processes in which the same products and components are produced over and over again. The general idea is to establish flow processes (even when the facility uses a jobbing or batch process layout) by linking work centers so that there is an even, balanced flow of materials throughout the entire production process, similar to that found in an assembly line. To accomplish this, an attempt is made to reach the goals of driving all inventory buffers toward zero and achieving the ideal lot size of one unit.

The basic elements of JIT were developed by Toyota in the 1950's, and became known as the Toyota Production System (TPS). JIT was well-established in many Japanese factories by the early 1970's. JIT began to be adopted in the U.S. in the 1980's (General Electric was an early adopter), and the JIT/lean concepts are now widely accepted and used.

Some Key Elements of JIT
1. Stabilize and level the MPS with uniform plant loading (heijunka in Japanese): create a uniform load on all work centers through constant daily production (establish freeze windows to prevent changes in the production plan for some period of time) and mixed model assembly (produce roughly the same mix of products each day, using a repeating sequence if several products are produced on the same line). Meet demand fluctuations through end‑item inventory rather than through fluctuations in production level. Use of a stable production schedule also permits the use of backflushing to manage inventory: an end item’s bill of materials is periodically exploded to calculate the usage quantities of the various components that were used to make the item, eliminating the need to collect detailed usage information on the shop floor.

2. Reduce or eliminate setup times: aim for single digit setup times (less than 10 minutes) or "one‑touch" setup ‑‑ this can be done through better planning, process redesign, and product redesign. A good example of the potential for improved setup times can be found in auto racing, where a NASCAR pit crew can change all four tires and put gas in the tank in under 20 seconds. (How long would it take you to change just one tire on your car?) The pit crew’s efficiency is the result of a team effort using specialized equipment and a coordinated, well-rehearsed process.

3. Reduce lot sizes (manufacturing and purchase): reducing setup times allows economical production of smaller lots; close cooperation with suppliers is necessary to achieve reductions in order lot sizes for purchased items, since this will require more frequent deliveries.

4. Reduce lead times (production and delivery): production lead times can be reduced by moving work stations closer together, applying group technology and cellular manufacturing concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given machine), and improving the coordination and cooperation between successive processes; delivery lead times can be reduced through close cooperation with suppliers, possibly by inducing suppliers to locate closer to the factory.

5. Preventive maintenance: use machine and worker idle time to maintain equipment and prevent breakdowns.

6. Flexible work force: workers should be trained to operate several machines, to perform maintenance tasks, and to perform quality inspections. In general, JIT requires teams of competent, empowered employees who have more responsibility for their own work. The Toyota Production System concept of “respect for people” contributes to a good relationship between workers and management.

7. Require supplier quality assurance and implement a zero defects quality program: errors leading to defective items must be eliminated, since there are no buffers of excess parts. A quality at the source (jidoka) program must be implemented to give workers the personal responsibility for the quality of the work they do, and the authority to stop production when something goes wrong. Techniques such as "JIT lights" (to indicate line slowdowns or stoppages) and "tally boards" (to record and analyze causes of production stoppages and slowdowns to facilitate correcting them later) may be used.

8. Small‑lot (single unit) conveyance: use a control system such as a kanban (card) system (or other signaling system) to convey parts between work stations in small quantities (ideally, one unit at a time). In its largest sense, JIT is not the same thing as a kanban system, and a kanban system is not required to implement JIT (some companies have instituted a JIT program along with a MRP system), although JIT is required to implement a kanban system and the two concepts are frequently equated with one another.

Difference between MRP & JIT
JIT and MRP are quite different but complementary material planning and control concepts. MRP (material requirements planning), MRPII (manufacturing resource planning) and ERP* (enterprise resource planning) are time phased, forward looking material and resource planning tools. JIT (just in time) is a philosophy based on the elimination of waste, an important component of JIT is kanbans which is a technique based on replacing material that has been used but has no forward visibility. It is possible to operate satisfactorily with MRPII only but it is not possible to use JIT only to run a manufacturing operation as you cannot operate a manufacturing facility without forward planning, however simple, to ensure that capacity and any materials that cannot be replenished with kanbans are available when required.

Kanban Production Control System

A kanban or “pull” production control system uses simple, visual signals to control the movement of materials between work centers as well as the production of new materials to replenish those sent downstream to the next work center. Originally, the name kanban (translated as “signboard” or “visible record”) referred to a Japanese shop sign that communicated the type of product sold at the shop through the visual image on the sign (for example, using circles of various colors to indicate a shop that sells paint). As implemented in the Toyota Production System, a kanban is a card that is attached to a storage and transport container. It identifies the part number and container capacity, along with other information, and is used to provide an easily understood, visual signal that a specific activity is required.

In Toyota’s dual-card kanban system, there are two main types of kanban:

1. Production Kanban: signals the need to produce more parts

2. Withdrawal Kanban (also called a "move" or a "conveyance” kanban): signals the need to withdraw parts from one work center and deliver them to the next work center.

In some pull systems, other signaling approaches are used in place of kanban cards. For example, an empty container alone (with appropriate identification on the container) could serve as a signal for replenishment. Similarly, a labeled, pallet-sized square painted on the shop floor, if uncovered and visible, could indicate the need to go get another pallet of materials from its point of production and move it on top of the empty square at its point of use.
A kanban system is referred to as a pull‑system, because the kanban is used to pull parts to the next production stage only when they are needed. In contrast, an MRP system (or any schedule‑based system) is a push system, in which a detailed production schedule for each part is used to push parts to the next production stage when scheduled. Thus, in a pull system, material movement occurs only when the work station needing more material asks for it to be sent, while in a push system the station producing the material initiates its movement to the receiving station, assuming that it is needed because it was scheduled for production. The weakness of a push system (MRP) is that customer demand must be forecast and production lead times must be estimated. Bad guesses (forecasts or estimates) result in excess inventory and the longer the lead time, the more room for error.
The weakness of a pull system (kanban) is that following the JIT production philosophy is essential, especially concerning the elements of short setup times and small lot sizes, because each station in the process must be able to respond quickly to requests for more materials.

Dual-card Kanban Rules:
No parts are made unless there is a production kanban to authorize production. If no production kanban are in the “in box” at a work center, the process remains idle, and workers perform other assigned activities. This rule enforces the “pull” nature of the process control.
There is exactly one kanban per container.
Containers for each specific part are standardized, and they are always filled with the same (ideally, small) quantity. (Think of an egg carton, always filled with exactly one dozen eggs.)
Decisions regarding the number of kanban (and containers) at each stage of the process are carefully considered, because this number sets an upper bound on the work-in-process inventory at that stage. For example, if 10 containers holding 12 units each are used to move materials between two work centers, the maximum inventory possible is 120 units, occurring only when all 10 containers are full. At this point, all kanban will be attached to full containers, so no additional units will be produced (because there are no unattached production kanban to authorize production). This feature of a dual-card kanban system enables systematic productivity improvement to take place. By deliberately removing one or more kanban (and containers) from the system, a manager will also reduce the maximum level of work-in-process (buffer) inventory. This reduction can be done until a shortage of materials occurs. This shortage is an indication of problems (accidents, machine breakdowns, production delays, defective products) that were previously hidden by excessive inventory. Once the problem is observed and a solution is identified, corrective action is taken so that the system can function at the lower level of buffer inventory. This simple, systematic method of inventory reduction is a key benefit of a dual card kanban system.