2. Evaluate alternative schedules: Master schedule is prepared by trial and error. Many computer simulation models are available to evaluate the alternate schedules. 3. Generate material requirement: It forms the basic input for material requirement planning (MRP). 4. Generate capacity requirements: Capacity requirements are directly derived from MPS. Master scheduling is thus a prerequisite for capacity planning. 5. Facilitate information processing: By controlling the load on the plant. Master schedule determines when the delivery should be made. It coordinates with other management information systems such as, marketing, finance and personnel. 6. Effective utilization of capacity: By specifying end item requirements schedule establishes the load and utilization requirements for machines and equipment.
5.9 MATERIAL REQUIREMENT PLANNING (MRP)
MRP refers to the basic calculations used to determine components required from end item requirements. It also refers to a broader information system that uses the dependence relationship to plan and control manufacturing operations. “Materials Requirement Planning (MRP) is a technique for determining the quantity and timing for the acquisition of dependent demand items needed to satisfy master production schedule requirements.”
5.9.1 Objectives of MRP
1. Inventory reduction: MRP determines how many components are required when they are required in order to meet the master schedule. It helps to procure the materials/ components as and when needed and thus avoid excessive build up of inventory. 2. Reduction in the manufacturing and delivery lead times: MRP identifies materials and component quantities, timings when they are needed, availabilities and procurements and actions required to meet delivery deadlines. MRP helps to avoid delays in production and priorities production activities by putting due dates on customer job order. 3. Realistic delivery commitments: By using MRP, production can give marketing timely information about likely delivery times to prospective customers. 4. Increased efficiency: MRP provides a close coordination among various work centres and hence help to achieve uninterrupted flow of materials through the production line. This increases the efficiency of production system.
5.9.2 MRP System
The inputs to the MRP system are: (1) A master production schedule, (2) An inventory status file and (3) Bill of materials (BOM). Using these three information sources, the MRP processing logic (computer programme) provides three kinds of information (output) for each product component: order release requirements, order rescheduling and planned orders. PRODUCTION PLANNING AND CONTROL
Fig. 5.5 MRP system
1. MASTER PRODUCTION SCHEDULE (MPS)
MPS is a series of time phased quantities for each item that a company produces, indicating how many are to be produced and when. MPS is initially developed from firm customer orders or from forecasts of demand before MRP system begins to operate. The MRP system whatever the master schedule demands and translates MPS end items into specific component requirements. Many systems make a simulated trial run to determine whether the proposed master can be satisfied. 2. INVENTORY STATUS FILE Every inventory item being planned must have an inventory status file which gives complete and up to date information on the on-hand quantities, gross requirements, scheduled receipts and planned order releases for an item. It also includes planning information such as lot sizes, lead times, safety stock levels and scrap allowances. 3. BILL OF MATERIALS (BOM) BOM identifies how each end product is manufactured, specifying all subcomponents items, their sequence of build up, their quantity in each finished unit and the work centres performing the build up sequence. This information is obtained from product design documents, workflow analysis and other standard manufacturing information.
5.10 CAPACITY PLANNING
Design of the production system involves planning for the inputs, conversion process and outputs of production operation. The effective management of capacity is the most important responsibility of production management. The objective of capacity management (i.e., planning and control of capacity) is to match the level of operations to the level of demand. Capacity planning is to be carried out keeping in mind future growth and expansion plans, market trends, sales forecasting, etc. It is a simple task to plan the capacity in case of stable demand. But in practice the demand will be seldom stable. The fluctuation of demand creates problems regarding the procurement of resources to meet the customer demand. Capacity decisions PRODUCTION AND OPERATIONS MANAGEMENT
are strategic in nature. Capacity is the rate of productive capability of a facility. Capacity is usually expressed as volume of output per period of time. Production managers are more concerned about the capacity for the following reasons: l Sufficient capacity is required to meet the customers demand in time.
l Capacity affects the cost efficiency of operations.
l Capacity affects the scheduling system.
l Capacity creation requires an investment.
Capacity planning is the first step when an organization decides to produce more or new products.
5.10.1 Measurement of Capacity Planning
The capacity of the manufacturing unit can be expressed in number of units of output per period. In some situations measuring capacity is more complicated when they manufacture multiple products. In such situations, the capacity is expressed as man-hours or machine hours. The relationship between capacity and output is shown in Fig. 5.6. 1. Design capacity: Designed capacity of a facility is the planned or engineered rate of output of goods or services under normal or full scale operating conditions. For example, the designed capacity of the cement plant is 100 TPD (Tonnes per day). Capacity of the sugar factory is 150 tonnes of sugarcane crushing per day. 2. System capacity: System capacity is the maximum output of the specific product or product mix the system of workers and machines is capable of producing as an integrated whole. System capacity is less than design capacity or at the most equal, because of the limitation of product mix, quality specification, breakdowns. The actual is even less because of many factors affecting the output such as actual demand, downtime due to machine/equipment failure, unauthorised absenteeism.
Fig. 5.6 Capacity and output relationship
PRODUCTION PLANNING AND CONTROL !
The system capacity is less than design capacity because of long range uncontrollable factors. The actual output is still reduced because of short-term effects such as, breakdown of equipment, inefficiency of labour. The system efficiency is expressed as ratio of actual measured output to the system capacity. Actual output System Efficiency (SE) = System capacity 3. Licensed capacity: Capacity licensed by the various regulatory agencies or government authorities. This is the limitation on the output exercised by the government. 4. Installed capacity: The capacity provided at the time of installation of the plant is called installed capacity. 5. Rated capacity: Capacity based on the highest production rate established by actual trials is referred to as rated capacity.
5.10.2 Process of Capacity Planning
Capacity planning is concerned with defining the long-term and the short-term capacity needs of an organization and determining how those needs will be satisfied. Capacity planning decisions are taken based upon the consumer demand and this is merged with the human, material and financial resources of the organization. Capacity requirements can be evaluated from two perspectives—long-term capacity strategies and short-term capacity strategies. 1. LONG-TERM CAPACITY STRATEGIES Long-term capacity requirements are more difficult to determine because the future demand and technology are uncertain. Forecasting for five or ten years into the future is more risky and difficult. Even sometimes company’s today’s products may not be existing in the future. Long range capacity requirements are dependent on marketing plans, product development and life- cycle of the product. Long-term capacity planning is concerned with accommodating major changes that affect overall level of the output in long-term. Marketing environmental assessment and implementing the long-term capacity plans in a systematic manner are the major responsibilities of management. Following parameters will affect long range capacity decisions. 1. Multiple products: Company’s produce more than one product using the same facilities in order to increase the profit. The manufacturing of multiple products will reduce the risk of failure. Having more than one product helps the capacity planners to do a better job. Because products are in different stages of their life-cycles, it is easy to schedule them to get maximum capacity utilisation. 2. Phasing in capacity: In high technology industries, and in industries where technology developments are very fast, the rate of obsolescence is high. The products should be brought into the market quickly. The time to construct the facilities will be long and there is no much time as the products should be introduced into the market quickly. Here the solution is phase in capacity on modular basis. Some commitment is made for building funds and men towards facilities over a period of 3–5 years. This is an effective way of capitalising on technological breakthrough. 3. Phasing out capacity: The outdated manufacturing facilities cause excessive plant " PRODUCTION AND OPERATIONS MANAGEMENT
closures and down time. The impact of closures is not limited to only fixed costs of plant and machinery. Thus, the phasing out here is done with humanistic way without affecting the community. The phasing out options makes alternative arrangements for men like shifting them to other jobs or to other locations, compensating the employees, etc. 2. SHORT-TERM CAPACITY STRATEGIES Managers often use forecasts of product demand to estimate the short-term workload the facility must handle. Managers looking ahead up to 12 months, anticipate output requirements for different products, and services. Managers then compare requirements with existing capacity and then take decisions as to when the capacity adjustments are needed. For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not be changed. Many short-term adjustments for increasing or decreasing capacity are possible. The adjustments to be required depend upon the conversion process like whether it is capital intensive or labour intensive or whether product can be stored as inventory. Capital intensive processes depend on physical facilities, plant and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal. In labour intensive processes short-term capacity can be changed by laying off or hiring people or by giving overtime to workers. The strategies for changing capacity also depend upon how long the product can be stored as inventory. The short-term capacity strategies are: 1. Inventories: Stock of finished goods during slack periods to meet the demand during peak period. 2. Backlog: During peak periods, the willing customers are requested to wait and their orders are fulfilled after a peak demand period. 3. Employment level (hiring or firing): Hire additional employees during peak demand period and layoff employees as demand decreases. 4. Employee training: Develop multi-skilled employees through training so that they can be rotated among different jobs. The multi-skilling helps as an alternative to hiring employees. 5. Subcontracting: During peak periods, hire the capacity of other firms temporarily to make the component parts or products. 6. Process design: Change job contents by redesigning the job.
5.11 ROUTING Routing may be defined as the selection of path which each part of the product will follow while being transformed from raw materials to finished products. Path of the product will also give sequence of operation to be adopted while being manufactured. In other way, routing means determination of most advantageous path to be followed from department to department and machine to machine till raw material gets its final shape, which involves the following steps: (a) Type of work to be done on product or its parts. (b) Operation required to do the work. (c) Sequence of operation required. BUSINESS SMALL BUSINESS
Manufacturing Resource Planning (MRP II): Definition and Example By ADAM HAYES Updated November 16, 2020 Reviewed by THOMAS BROCK
What Is Manufacturing Resource Planning?
Manufacturing Resource Planning (MRP II) is an integrated information system used by businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials Requirement Planning (MRP) systems by including the integration of additional data, such as employee and financial needs.
The system is designed to centralize, integrate, and process information for
effective decision making in scheduling, design engineering, inventory management, and cost control in manufacturing.
Both MRP and MRP II are seen as predecessors to Enterprise resource planning (ERP), which is a process whereby a company, often a manufacturer, manages and integrates the important parts of its business.
An ERP management information system integrates areas such as planning,
purchasing, inventory, sales, marketing, finance, and human resources. ERP is most frequently used in the context of software, with many large applications having been developed to help companies implement ERP.
Understanding Manufacturing Resource Planning
(MRP II) MRP II is a computer-based system that can create detailed production schedules using real-time data to coordinate the arrival of component materials with machine and labor availability. MRP II is used widely by itself, but it's also used as a module of more extensive enterprise resource planning (ERP) systems.
KEY TAKEAWAYS Manufacturing Resource Planning (MRP II) is an integrated information system used by businesses. MRP II is an extension of materials requirement planning (MRP). Both MRP and MRP II are seen as predecessors to Enterprise resource planning (ERP). MRP II is an extension of the original materials requirements planning (MRP I) system. Materials requirements planning (MRP) is one of the first software- based integrated information systems designed to improve productivity for businesses.
A materials requirements planning information system is a sales forecast-based
system used to schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast.
By the 1980s, manufacturers realized they needed software that could also tie into their accounting systems and forecast inventory requirements. MRP II was provided as a solution, which included this functionality in addition to all the capabilities offered by MRP I.
Real-World Examples of MRP II Software
The following are a small sampling of some popular MRP II software providers, as of early 2020:
For all intents and purposes, MRP II has effectively replaced MRP I software. Most MRP II systems deliver all of the functionality of an MRP system. But in addition to offering master production scheduling, bill of materials (BOM), and inventory tracking, MRP II provides functionality within logistics, marketing, and general finance.
For example, MRP II is able to account for variables that MRP is not—including machine and personnel capacity—providing a more realistic and holistic representation of a company’s operating capabilities. Many MRP II solutions also offer simulation features that allow operators to enter variables and see the downstream effect. Because of its ability to provide feedback on a given operation, MRP II is sometimes referred to as a closed-loop system.
MRP I included the following three major functionalities:
master production scheduling
bill of materials inventory tracking
MRP II includes those three, plus the following:
machine capacity scheduling
demand forecasting quality assurance general accounting MRP II systems are still in wide use by manufacturing companies today and can either be found as stand-alone solutions or as part of an enterprise resource planning (ERP) system. Enterprise Resources Planning (ERP) software systems are regarded as the successors of MRP II software.
ERP suites include applications well outside the scope of manufacturing. These can include everything from human resources and customer relationship management to enterprise asset management.
Related Terms Material Requirements Planning (MRP): How It Works, Pros and Cons Material requirements planning (MRP) is a software-based integrated inventory and supply management system designed for businesses. more
Closed Loop Mrp: What It Means, How It Works
Closed Loop MRP (Manufacturing Resource Planning) is a computerized system used for production planning and inventory control. more
and Examples Enterprise resource planning (ERP) is software used by a company to manage key parts of operations, including accounting and resource management. more
Inventory Management Defined, Plus Methods and
Techniques Inventory management is the process of ordering, storing and using a company's inventory: raw materials, components, and finished products. Learn about the different types of inventory management and pros and cons of each. more
Manufacturing: Definition, Types, Examples, and Use as
Indicator Manufacturing is the process of turning raw materials or parts into finished goods using tools, human labor, machinery, and chemical processing. more
Supply Chain Management (SCM): How It Works & Why It's
Important Supply chain management (SCM) is the management of the flow of goods and services, including all the processes of turning raw materials into final products. more
Related Articles FINTECH Material Requirements Planning (MRP): How It Works, Pros and Cons
