Materials Requirement Planning (MRP I) in Supply Chain Management

Introduction:

Materials Requirement Planning (MRP) is a critical component of supply chain management that enables organizations to efficiently plan and manage their inventory, procurement, and production processes. MRP helps businesses determine the right quantity and timing of materials required for manufacturing, ensuring smooth operations, minimized costs, and improved customer satisfaction. In this section, we will delve into the intricacies of MRP, its key components, and provide a practical example to illustrate its application.

Components of Materials Requirement Planning (MRP):

  1. Bill of Materials (BOM): The Bill of Materials is a comprehensive listing of all the components, raw materials, and sub-assemblies required to manufacture a final product. It includes information such as part numbers, descriptions, quantities, and relationships between the different items.

  2. Master Production Schedule (MPS): The Master Production Schedule serves as the foundation for MRP. It outlines the production plan by specifying the quantities of finished goods to be produced within specific time periods. The MPS considers customer demand, forecasts, and inventory levels to ensure production aligns with market requirements.

  3. Inventory Status: Inventory status refers to the current stock levels of raw materials, components, and finished goods. It includes information on quantities on hand, quantities committed for orders, and quantities on order but yet to be received. Accurate and up-to-date inventory data is essential for effective MRP calculations.

  4. Lead Times: Lead times represent the time required for suppliers to deliver materials once an order is placed. It encompasses the time from order placement to receipt, including processing, manufacturing, transportation, and any potential delays. Accurate lead time information ensures the timely availability of materials for production.

  5. MRP Calculations: MRP calculations involve running a series of calculations to determine the requirements for materials. This includes calculating net requirements, planned orders, and recommended order quantities. MRP takes into account factors such as the BOM, MPS, inventory status, and lead times to generate a detailed materials plan.

Example

Let’s consider a fictional company, ABC Bicycles, that produces bicycles. The company wants to implement MRP to efficiently manage its inventory and production processes. Here are the relevant details for our example:

  1. Bill of Materials (BOM): The BOM for a bicycle includes the following components and their quantities required for one bicycle:
  • Frame: 1 unit
  • Wheels: 2 units
  • Tires: 2 units
  • Gears: 1 unit
  • Chains: 1 unit
  • Brakes: 1 unit

  1. Master Production Schedule (MPS): The MPS indicates that ABC Bicycles needs to produce 100 bicycles in the upcoming month to meet customer demand.

  2. Inventory Status: At the beginning of the month, ABC Bicycles assesses its inventory levels:

  • Frames: 30 units on hand
  • Wheels: 80 units on hand
  • Tires: 150 units on hand
  • Gears: 50 units on hand
  • Chains: 40 units on hand
  • Brakes: 60 units on hand
  1. Lead Times: ABC Bicycles determines the lead times for each component based on historical data and supplier information:
  • Frames: 2 weeks lead time
  • Wheels: 1 week lead time
  • Tires: 1 week lead time
  • Gears: 1 week lead time
  • Chains: 1 week lead time
  • Brakes: 2 weeks lead time
  1. MRP Calculations: Using the BOM, MPS, inventory status, and lead times, the MRP system performs calculations to determine the net requirements for each component:

    Frames:
    Net requirement = (100 bicycles x 1 frame per bicycle) – 30 frames on hand = 70 frames
    Order recommendation: Place an order for 70 frames to meet the production schedule. Consider the 2-week lead time for frames.

    Wheels:
    Net requirement = (100 bicycles x 2 wheels per bicycle) – 80 wheels on hand = 120 wheels
    Order recommendation: Place an order for 120 wheels to meet the production schedule.  Consider the 1-week lead time for frames. 

    Tires:
    Net requirement = (100 bicycles x 2 tires per bicycle) – 150 tires on hand = 50 tires
    Order recommendation: Place an order for 50 tires to meet the production schedule. Consider the 1-week lead time for frames.

    Gears:
    Net requirement = (100 bicycles x 1 gear per bicycle) – 50 gears on hand = 50 gears
    Order recommendation: Place an order for 50 gears to meet the production schedule. Consider the 1-week lead time for frames.

    Chains:
    Net requirement = (100 bicycles x 1 chain per bicycle) – 40 chains on hand = 60 chains
    Order recommendation: Place an order for 60 chains to meet the production schedule. Consider the 1-week lead time for frames.

    Brakes:
    Net requirement = (100 bicycles x 1 brake per bicycle) – 60 brakes on hand = 40 brakes
    Order recommendation: Place an order for 40 brakes to meet the production schedule. Consider the 2-week lead time for frames.

    So the full material will be available after 2 weeks as it is the highest lead time. 

    Note: Rather then ordering all the item at once , you should order higher lead time Item first and then lower lead time one , so that you need not to carry the inventory in order to wait for other component. Here in our example we should order Wheels, Tires, Gears and Chains after one week of ordering Brakes and Frames

Conclusion: 

Materials Requirement Planning (MRP) is a powerful tool for effective inventory management and production planning. By integrating information from the BOM, MPS, inventory status, and lead times, MRP helps businesses ensure the availability of the right materials at the right time, avoid stock outs, reduce excess inventory, and optimize production schedules. Implementing MRP can enhance operational efficiency, streamline supply chain processes, and ultimately contribute to improved customer satisfaction.